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February 11, 2010

Snowstorm will depress tax revenue

Gov. Martin O'Malley says the state has spent $40 million on snow removal so far. The tab will surely go much higher, and that has implications for Maryland's difficult budget situation if the Feds don't come through with aid. But the snow has another budget effect. It'll depress tax revenue. Closed stores mean that sales tax doesn't get collected. Furloughed workers pay less income tax. Frozen commerce depresses corporate income and corporate income taxes.

David Roose, director of the Bureau of Revenue Estimates, figures it could be perhaps $10 million.

"We have in the past seen big hits on the sales tax from snowstorms, and we think that's what happened in December--January collections (December sales) were well below expectations after that storm right before Christmas," Roose says via email. "This one will presumably have a big impact also, though this is one of the smallest months for sales tax collections."

Snowstorms also tend to boost Web sales at the expense of local sales. That's another hit to taxes because Amazon and some other Web companies don't collect state sales taxes.

Posted by Jay Hancock at 9:04 AM | | Comments (5)
Categories: Taxes
        

Comments

for the record I would be buying stuff off Amazon even if were sunny and 85 degress out

I'm not sold on that idea of big sales tax losses. The snow will (eventually) melt and people will again be in the stores. That happens with snowstorms, heavy flooding rains and extreme temperatures. The real worry here is a tax rise to cover snow clean-ups. Snow goes, but higher taxes are forever......

This article should be worded differently.
"The storm has reduced the ability of the state to take money from the most productive people in the state. Therefore there will be less money for the government employees, so the state won't be able to take as much money from them."

On the flip side is the money being paid to otherwise unemployed equipment operators, truck drivers, and laborers who are working lots of hours. Eventually this money will find its way into the tax stream either as income tax or as sales tax.

The article is spot on regardless of political orientation. As a retailer, my sales were down last Thursday and Friday, I was closed on my biggest days, Saturday and Sunday, Monday was 1/2 of normal for a winter Monday, and Tuesday was 1/3 of normal. Closed again Wed/Thur, who knows what the weekend brings.

Still have to pay bills, rent, etc. Didn't have to pay hourly employees, reducing the income tax to city/state/fed withholding because I didn't have to pay employees. But even if I had managed to get open, we wouldn't have had enough sales to justify the labor.

So my employees have seen their income reduced, the city and state has seen its tax collections from my business evaporate, and my own income has gone down in the snow...so I won't have to pay taxes on income I never generated either.

Though I will recover to previous levels of sales, the thought that I may make up for it by getting even more sales than normal in the future doesn't work. My future sales will be more, less, or the same regardless of this past week's weather.

And to the degree that more Marylanders decide to send their money over the internet to out of state businesses, that just cuts into local businesses who are actually price competitive with many of those sites, but those dollars being sent to California may help the Governator, but it means I have lower sales, less need for employees, and the city and state collect fewer taxes and the entire regional economy suffers. You see, my business doesn't generate enough taxes by itself to make any difference. But a hundred businesses like mine do. A thousand businesses like mine are huge to this state.

So the next time you chose to shop over the internet and avoid taxes, well, I would say you forfeit your right to claim that you are a "taxpayer". You are only a partial taxpayer, and you just sent your snow removal dollars to Amazon.

The weather, the resulting tax scenario and budget impact, is nobody's fault, so don't look for somebody to blame. You may complain about the way the officials react and adjust, but you can't blame them

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About Jay Hancock
Jay Hancock has been a financial columnist for The Baltimore Sun since 2001. He has also been The Baltimore Sun's diplomatic correspondent in Washington and its chief economics writer. Before moving to Baltimore in 1994 he worked for The Virginian-Pilot of Norfolk and The Daily Press of Newport News.

His columns appear Tuesdays and Sundays.
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