Posted on March 31, 2013
By AMBER LARKINS
ANNAPOLIS — Charlie Kidwell, who has owned FreeState Auto and Truck Service in Capitol Heights for nearly 25 years, said his business will be hurt by Gov. Martin O’Malley’s gas tax hike, which passed the Senate Friday.
The Infrastructure Investment Act of 2013, which passed the House of Delegates March 22, will raise the cost of doing business for Kidwell, who owns one tow truck and receives two to four calls a day from people needing towing within a 20 mile radius. The company also provides vehicle service and repairs, but has been hurting during the recession.
Kidwell has scaled back his company from 10 to five employees, and even changed his location in an attempt to get more business.
“I don’t know how much longer I’m going to do this for,” Kidwell said. “It’s stressful and it’s not profitable.”
Various small businesses and fuel industry lobbyists are opposed to the gas tax because they say it will negatively affect their businesses.
O’Malley’s legislation increases revenue for the Transportation Trust Fund by indexing the motor fuel tax rate to inflation and by imposing a 1 percent sales and use tax July 1. That rate would increase incrementally until it reaches 5 percent in fiscal year 2017 unless federal legislation is enacted on Internet sales taxes, in which case it would top out at 3 percent.
In just over five years, the new tax could increase prices at the pump by 14 cents to 21 cents per gallon, according to the state’s legislative analysis.
The Transportation Trust Fund, which is used to maintain roads and infrastructure, as well as pay for new projects, is projected to receive 18 percent of its funding from the motor fuel tax in fiscal year 2014.
The bill has been determined to have “a meaningful impact on small business” because it will increase the cost to own and operate vehicles, according to the bill’s fiscal note.
Kirk McCauley, director of member relations and government affairs for the Washington, Maryland, Delaware Service Station and Automotive Repair Association, said the tax will have dire consequences for some of the stations it represents, especially around the border, because people will drive to Virginia for gas.
“Some of them will be out of business,” McCauley said.
McCauley would have liked to see a more broadly based sales tax instead of a fuel tax rate indexed to inflation. He doesn’t like that it won’t go below a certain point.
“It’s a forever tax,” said McCauley.
Kimberly Burns, president of Maryland Business for Responsive Government, an organization which educates business owners about policies under consideration by state government, worries about the ripple effect the tax will have throughout Maryland’s economy.
“I think the effect of this will be felt everywhere from the pumps to the pizza parlor, but most of all in the pocket books of the Maryland citizens,” Burns said.
Pete Horrigan, president of the Mid-Atlantic Petroleum Dealers Association, actively lobbied against the tax. His association represents petroleum marketers who supply about 1,500 of Maryland’s gas stations.
“We don’t like it. I don’t know how to be any more plain. It’s a terrible bill. It’s going to put our service stations and businesses in jeopardy,” Horrigan said.
He said the petroleum industry would be affected by the tax because service stations would lose money.
“They’re our customers and that’s how we make our money,” Horrigan said.
Supporters of the tax say it will create better highways, more jobs and less traffic congestion.
At least one business owner with a fleet of vehicles supports O’Malley’s plan.
Twenty-two years ago, Mark Thistel began Freedom Car, a livery service based in Baltimore with cars that he describes as nicer than a taxi, but not as nice as a stretch limo. It’s a $2 million business with 38 employees.
Thistel said for every penny increase in gas, his company spends an additional $550 annually.
“It’s not a casual thing for me to say, ‘sure, I’ll pay 7 cents extra’. It’s really a net loss,” he said.
Thistel supports the gas tax because bad roads mean he pays more maintenance on his cars.
“Time is money. Breakdowns are money,” Thistel said.
Thistel described the tax increase as the cost of doing business.
“I’m happy to pay taxes. I’m a citizen,” Thistel said. “I don’t know why more people don’t feel this way.”
The Greater Washington Board of Trade, which represents larger businesses in the metropolitan area, also supports O’Malley’s transportation plan.
Jim Dinegar, president and CEO of the Board of Trade, said his organization isn’t fond of taxes, but the bill will increase transportation funding for roads and mass transit.
“Transportation for the most part is to get people to work, to get them home, to get the goods and services to market. It’s all about the economy,” he said.
Dinegar said the Washington area has some of the greatest traffic congestion in the nation, which would be eased by the implementation of the bill.
“It’s a necessary increase,” Dinegar said.
Maryland’s transportation system is in bad enough shape that a gas tax is worth the extra cost, said Carl Davis, a senior analyst at the Institute of Taxation and Economic Policy, a think tank.
“There are definite tangible benefits,” Davis said.
Maryland and 34 other states have flat gas tax rates, which get eaten away by inflation over time, Davis said.
Davis said Florida has the most effective gas tax structure because they tie their tax to general inflation.
If the new tax becomes law, Maryland would join a fairly short list of states that have taken a long term perspective on this tax, Davis said.