Wednesday, January 28, 2009
Business Community Blasts Sales Tax Penalty
A skeptical Senate Budget and Taxation Committee heard testimony today on a bill by the Comptroller’s office that would increase penalties for underpayment of sales tax by businesses. James Loftus, Director of Compliance for the Comptroller, supported SB 94, which would provide that underpayment of sales and use tax by 25 percent or more is prima facie evidence of gross negligence and require the imposition of 25 percent penalties on the underpayments. Maryland Chamber Vice President of Government Affairs Ron Wineholt joined other business groups in opposing the bill as vague, unfair to taxpayers, and unnecessary in light of existing penalty laws. Wineholt argued that
1. The bill provides no time period with which to measure the 25 percent underpayment that would trigger the automatic penalty. At a minimum, language should be added to clarify that the 25 percent underpayment is measured by the entire period under audit, which would typically be a four-year period.
2. By establishing that an underpayment of 25 percent is prima facie evidence of gross negligence, the bill makes it very difficult for a business owner to effectively contest an underpayment that may have resulted from an honest difference of opinion regarding the taxability of certain transactions. The bill should be amended to provide that a person may rebut the presumption of gross negligence by demonstrating reasonable cause for an underpayment of tax.
“While we typically endorse efforts of the comptroller to ensure effective tax compliance, we believe that this bill as written is unfair to businesses,” Wineholt said.
Other organizations that testified against the bill included the Restaurant Association of Maryland, Maryland Retailers Association, National Federation of Independent Business, and the Tax Section of the Maryland State Bar Association.
