Maryland Tax Proposal Would Hand Another Victory to Virginia

By Brad Wills and Henry Fawell

“And The Winner Is…Virginia”

That’s the headline greeting anyone who visits CNBC’s 2011 “Survey of America’s Top States for Business” online. Virginia ranks as the premiere place in America to do business while our home state of Maryland lags 28 spots behind.

In coming weeks, that disparity may get a lot worse. On Tuesday, March 6, the Maryland General Assembly held a hearing to consider a proposal to impose a new six percent sales tax on professional services firms in Maryland, including public relations firms like ours. The tax would also be applied to dozens of other services, from commercial cleaning to cell phone coverage.  More than 74 witnesses signed up to testify before the House Ways & Means Committee, including PR professionals, and the committee heard an earful.   WJZ TV in Baltimore ran this story yesterday on the hearing.

Our opposition to this plan is not borne of partisanship. One of us is a lifelong Democrat and the other a lifelong Republican. We were both born and raised in Maryland. Our opposition is due to the severe decline in work and revenue PR firms and other professional services firms like ours will experience if House Bill 1051 becomes law. Consider the consequences:

The Virginia Factor: Virginia outranks Maryland in 9 out of 10 economic categories in CNBC’s survey, from overall economy to cost of living. Despite these odds, our respective firms “import” work and revenue to Maryland from Virginia clients, which we then spend in our communities in the form of personal income, philanthropy and by hiring employees and subcontractors. If House Bill 1051 becomes law, the importation of Virginia money may cease entirely for Maryland firms like ours. Our Virginia clients will shift work from our companies to Virginia firms whose costs have not been artificially inflated by their government.

Mobility: Saddled with this new tax, professional services firms like ours will simply move to Virginia, the District of Columbia, Delaware or Pennsylvania. We don’t have heavy machinery to move. We only need to move brainpower, laptops and mailing addresses a few miles across the Potomac. We know from experience. We served as media advisors to the Maryland Computer Services Association during its successful repeal of the infamous “Tech Tax” in 2008. Within days of the tax’s enactment, hundreds of computer services firms received letters from economic development offices in bordering states encouraging them to move across state lines. Only full repeal of that tax prevented the exodus of hi-tech entrepreneurs and jobs. Odds are good we’ll see those letters again if House Bill 1051 becomes law.

Hurting the Little Guy: Consider the impact this tax will have on the owners of very small businesses. For a sole proprietorship, one or two owner S-Corps or LLC’s, a new business tax is, practically speaking, identical to a second personal income tax. The cash to pay this new tax comes directly out of the owner’s pocket. For these owners, there may be no alternatives to recoup the funds that are available to larger corporations such as price increases, stock sales or other funding. Likewise, our small business clients would shoulder a disproportionate tax burden as lawmakers force them to pay the same tax rate on professional services that a Fortune 100 would pay.

The Message to Entrepreneurs: Like all entrepreneurs, we both took a risk – a personal, professional and financial risk – to pursue the dream of entrepreneurship in Maryland. We are driven by the idea of helping others communicate more effectively. We take pride in building our respective enterprises while creating work and wealth for others. Like the thousands of small businesses subject to House Bill 1051, we don’t want to be punished for pursuing this dream.

If Maryland lawmakers want to create jobs and score a few victories against Virginia for a change, they can start by rejecting this terribly flawed bill.  All PR professionals in Maryland should get involved by writing your representative in Annapolis. Click here to link to the Maryland Chamber of Commerce’s web site that does a great job outlining the issue and makes it easy to get involved.

Brad Wills is President & CEO of Wills & Associates Public Relations in Bethesda. Henry Fawell is President of Campfire Communications in Annapolis.
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