BERLIN — The Maryland General Assembly late Monday approved a 50-percent increase in the sales tax on alcohol in the state, leading shore businesses to fear reduced sales because of their proximity to Delaware.
Just before the 2011 General Assembly session closed late Monday night, the House of Delegates approved legislation that will increase the sales tax rate on alcohol in Maryland from the current 6 percent to 9 percent beginning July 1. Earlier, the State Senate had approved a similar measure that would have gradually increased the tax on alcohol by 1 percent for three years to get to the desired 9 percent.
The 50-percent increase will raise roughly $85 million for the state’s general fund, portions of which will be dedicated to public school construction and disability programs.
However, the lion’s share of the proceeds will be spent in the highly populated areas in the center of the state. For example, Baltimore City, Prince George’s County and Montgomery County will reportedly divvy up $27 million, while the eight counties on the Eastern Shore including Worcester will share just $156,000.
According to Delegate Mike McDermott (R-38B), who argued vehemently against the legislation late Monday night, the bill will be particularly tough on border areas like Worcester County where liquor prices are already cheaper and tax-free in some cases. Even the fiscal note for the bill predicts decreased sales and losses of jobs in many areas, according to the delegate.
“That’s really going to hurt Ocean City in a lot of ways we haven’t even realized yet,” said McDermott. “Those businesses walk a pretty narrow bottom line.”
Before Sine Die on Monday, the Senate had approved its version of the bill, which called for a 1 percent increase in each of the next three years. Senator Jim Mathias (D-38) did not support the legislation at all and liked it even less when the House approved the hike in the first year.
“I voted against it and I spoke against it several times through the process,” he said. “In this very difficult economic time, to increase the tax on alcohol was a burden that was not acceptable to me.”
Mathias said in Worcester County, which still has a Liquor Control Board that adds another mark-up on the price of liquor by as much as 20, 30 even 50 percent on some items, the alcohol tax increase is even more onerous. The same holds true for other jurisdictions in the state with dispensary systems.
“In Worcester, Somerset, Wicomico, even Montgomery, business owners are already paying 15 to 18 percent more, even 60 percent more on some things,” he said.
For many local businesses already struggling in the sagging economy, a 50-percent sales tax increase on alcohol comes at a particularly bad time.
La Hacienda owner and resident legislative watchdog Bill Herbst this week pointed out businesses in and around Ocean City will pay nearly 40 percent more than their competitors across the border in Delaware, considering the average 30 percent mark-up by the LCB and the 9-percent sales tax.
Herbst said many business owners will be faced with expensive upgrades to their digital cash register and accounting systems, a cost not considered by the lawmakers who passed the bills.
“Not all point-of-sale systems will be able to handle three tiers of tax rates,” he said. “We just upgraded ours last year at a great expense, but a lot of the older systems aren’t equipped to handle the changes. All of those small Mom and Pop businesses are going to have to spend thousands of dollars to upgrade their systems.”
McDermott said this week House leaders pushed the bill through at the 11th hour with little debate allowed before calling for a vote.
“The process surrounding this bill was appalling,” he said. “If we’re going to debate something, let it be done fair and impartial and allow the views of the people of this state to be reflected in their citizen legislature, not those that hide in the back room, making deals around a table and deciding what the delegations are going to receive.”
The freshmen delegate argued from the floor against the late night approval for the bill.
“The people of Maryland are booing this process,” he said. “That’s why they put so many freshmen in here. They’re tired of it. They’re tired of this process. They’re tired of not being heard. They’re tired of you deciding what’s right on a dark night and ramming this through at the 89th day.”
Herbst agreed the legislation was pushed through late Monday night by lawmakers out of touch with what is going on at the grassroots level.
“It was all backroom politics,” he said. “Those legislators need parental supervision. Most of them are out of touch and really have no idea what the average small businessperson goes through. We’ve been biting the bullet for a long time.”