OCEAN CITY – Just few days removed from the Maryland General Assembly’s special session called to begin tackling the state’s projected $1.7 billion deficit, everything appears to be on the table including an effort to lump property management services into a larger group of services not previously subject to state sales tax, the passage of which could have a huge impact on the resort area.
State lawmakers will gather in Annapolis on Monday to begin debating Gov. Martin O’Malley’s proposed solution to the state’s growing deficit problem. The governor’s plan includes a wide range of proposed tax increases and other revenue-generating mechanisms including slots. Hidden among the many proposals on the table is an effort to include property management services in with a larger group of services previously immune to state sales tax, such as cable television, auto repairs, beauty and barber shops and many others.
The plan is two-fold in that it not only makes property management services subject to the state sales tax, but it would also raise the current sales tax in Maryland from five to six cents on the dollar. On the surface, the one-cent increase in the sales tax does not appear to be too onerous, but it represents an increase of 20 percent which will have to borne by the purchasers of all goods and services including property management services.
The measure has been strongly criticized in the local area, which has a proliferation of property management companies handling the countless condominium and homeowner associations in the resort area. The fear is that the trickle-down effect will be passed along to local renters and property owners already struggling with high rents, mortgages and homeowner association fees.
Coastal Association of Realtors President Cassie Mead said this week the proposed inclusion of property management services under the umbrella of the state sales tax could have a profound effect in Ocean City and Worcester County.
“The governor’s proposal to tax property management services could have a devastating effect on Ocean City and the surrounding areas,” she said. “It’s not good for housing and it’s certainly not good for the rental market. That means renters in apartments that use property management services will pay that tax through higher rents.”
While much of the opposition has focused on what the impact of the measure could be on renters, Mead warned similar impacts could be felt by homeowners and condo owners. Many homeowner associations and condominium boards run by property management companies would have to pay a 6-percent tax on top of their existing management fees.
“The main focus has been on Maryland renters paying more due to the property management tax, however, homeowners and condo owners should take note too,” said Mead. “This tax is bad enough when considering its impact on renters, but it will hit homeowners too.”
State Comptroller Peter Franchot said this week in a prepared statement about the special session applying sales tax to property management services is just part of the larger equation for the state. Franchot said he has heard a lot of opposition to the proposal.
“Although the details on this particular provision are unclear, concerns about its impact on the State’s affordable housing stock have already been raised,” he said “In meeting with citizens and business leaders throughout Maryland, I have heard numerous complaints that the costs of this tax will simply be ‘passed through’ to renters, many of whom are families with low and moderate incomes who cannot afford further strain on their fixed budgets.”
On the home front, Delegate James Mathias (D-38B) said he too has heard a dearth of opposition to the proposal. While he hasn’t decided how he will vote if and when the time comes, Mathias said the amount of opposition would likely put an end to the proposal.
“I understand the adverse impact of this, but I haven’t made a definitive decision,” he said. “If I was forecasting today, I would say it probably won’t pass. I’m leaning toward not voting for it.”
Mathias said the property management tax is just one issue out of many his constituents are passionate about as the General Assembly prepares for the special session. He has received countless emails, phone calls and letters from local residents about all of the issues and not all of them have been pleasant.
“They understand what is at stake here,” he said. “This is a situation that is going to affect all of us, regardless of how it turns out. There is a tremendous amount of emotion out there and I understand that. I just have to separate the emotion from the facts.”
Mathias said he is entering the special session with an open mind and will make decisions based on the best information available. He said he is driven by what is best for the state, but not at the expense of the constituents in his district.
“I’m going to have to make decisions on all of these things and those decisions will be based primarily on what is best for our district,” he said. “There will be tough choices and they won’t always be popular, but I don’t want to trade the cow for the beans.”