Proposed Maryland Bill Could Severely Impact Travel Agency Profitability

The Maryland General Assembly next week starts holding hearings on a bill (H.B. 1628) that would broaden the base of the state’s sales tax to include all services performed in the state, including travel agency services.

While there is no direct reference to travel agencies or the kinds of services they provide in the proposed legislation, the American Society of Travel Advisors (ASTA) and local agency owners are concerned that if the tax is applied to an agency’s gross receipts, it would make profitability impossible for most Maryland agencies.

In a summary on the General Assembly’s website, the bill is stated to alter “the definitions of ‘taxable price’ and ‘taxable service’ for the purposes of certain provisions of law governing the sales and use tax to impose the tax on certain labors and services”; and “altering the rate of the sales and use tax.”

In a statement, ASTA said: “While we have no idea how this tax would be applied to travel agencies – on gross receipts, on service or consultation fees, on commissions, etc. – we know it would increase Maryland agencies’ cost of doing business by at least 5% overnight and put them at a disadvantage with competitors in neighboring states.”

At the same time, the bill proposes to lower the sales tax rate from 6% to 5%.

“Assuming it passes and is signed by the Governor, who is adamantly opposed to it, it would depend on how it’s implemented and what the tax base for travel agencies is,” said Eben Peck, ASTA’s executive vice president, advocacy. “We don’t know and I guarantee the legislators don’t either as they are thinking of a straightforward service provider like landscaping, where you simply add 5% to the bill.”

Peck believes that if the tax is applied to an agency’s gross receipts, “it would put most Maryland agencies out of business.”

“There are so many ways this legislation could go wrong for agencies,” said Jay Ellenby, president, Safe Harbors Business Travel, in Bel Air, Maryland. “The proposed bill creates debate, which is good, because we can educate the Assembly about how our businesses operates. This takes me back five years to the old proposed online travel agency hotel tax. There often is a lack of understanding of what measures like this could do to the business community.”

The proposal is a result of Maryland’s Kirwan Commission on Innovation and Excellence in Education, a multi-year initiative to research and develop major funding and policy changes to improve the state’s education system.

“There’s a big price tag associated with the Kirwan Commission’s recommendations, and the legislature is trying to figure out how to pay for it,” Ellenby explained. “We’re just concerned that this proposal is not a sound way to go about this.”

ASTA is calling on members who live in Maryland or know anyone who does, to participate in the association’s grassroots portal and contact their legislators to oppose the bill. A hearing is scheduled in Maryland’s House Ways and Means committee for Mar. 3.

H.B. 1628 is sponsored by House Delegates Eric Luedtke, Benjamin Barnes, Dereck Davis, Michael Jackson, Anne Kaiser, and Maggie McIntosh. If passed during this legislative session, it would go into effect on Jan. 1, 2021.

As has been seen with other unpopular bills in other states, a coalition of industries is likely to form to oppose the bill, Peck said. “Different industries, including us, will seek exemptions and the weight of the opposition – right now, every service provider in the State of Maryland – will slow its momentum,” he said.

“The closest thing to this situation is Utah last year, where the legislature tried to tax every service under the sun, and in the end, the effort collapsed of its own weight,” Peck said. “Legislators would be wise to look at that situation as well as past failed state attempts to tax services – you always end up picking winners and losers, and the efforts usually fail.”

ASTA is devising its strategy for the Mar. 3 hearing, and is encouraging members to attend if they can. Ellenby said he plans to attend the hearing before heading out on an overseas business trip, and is clearing as much of his calendar for visits to the state capital over the next few months, to ensure agents have their voice heard. “I don’t think this is going to be a one-visit-and-done kind of thing,” he said.