A Senate committee listened Tuesday to the pros and cons of expanding Maryland's sales tax base to include more services, as well as goods purchased over the Internet.

The Senate Budget and Taxation Committee spent the day in Annapolis receiving briefings on taxes, the federal debt ceiling, education funding and toll increases. Legislative committees meet occasionally between the 90-day General Assembly sessions.

Tangible products, but few services, sold by Maryland retailers are taxed at 6 percent. This year, the sales tax is predicted to generate $4.2 billion, about 30 percent of the state's general fund revenue, according to the Department of Legislative Services.

Legislative Services analysts prepared a chart to show how much added revenue the state could make by taxing engineering services, cable television, auto repair, golf and other sales. If the state imposed a 6 percent tax on those and a dozen other services, it could take in at least $1 billion more each year, the department estimated.

Taxing goods purchased over the Internet — remote sales — would bring Maryland $184 million annually, a University of Tennessee study cited by Legislative Services showed. But instituting an Internet sales tax would be far more complicated than an expansion to services, possibly requiring federal approval.

Members of the Senate committee said they are not considering an expansion of the sales tax base at this time, but they spent more than two hours on the topic at a hearing in Annapolis.

"This is just a discussion," said Sen. James E. DeGrange Sr., an Anne Arundel Democrat on the committee. "There's nothing being considered. We're just here to hear comments."

Yet tax talk has been pervasive for the past year, as the General Assembly struggles with budget gaps deepened by the recession and the slow economic recovery. This year, the legislature signed off on an increase in the sales tax on alcohol, raising it to 9 percent from 6 percent.

The committee received a dire update Tuesday morning about the potential loss of federal money and downgrading of the U.S. government's bond rating if Washington fails to reach an agreement to raise the debt ceiling by Aug. 2.

Maryland is likely to be impacted if the government's top bond rating is lowered by not taking action on the federal debt ceiling as well as by any deal struck to raise it.

"The bottom line is, states are likely to lose under almost any scenario," said Warren G. Deschenaux, director of the Department of Legislative Services.

Any federal debt deal probably would include cuts to state Medicaid funds and/or discretionary funds, Deschenaux predicted. He said federal highway funds are likely to be trimmed.

Business advocates, including Kathleen T. Snyder, president of the Maryland Chamber of Commerce, warned lawmakers that any decision to expand the sales tax could drive companies out of Maryland, where taxes and regulations already have raised a "competitiveness issue," she said.

The Democratic-led General Assembly meets in October for a special session to approve a congressional redistricting plan. Although some legislative leaders had talked this spring about expanding the session to include revenue and other issues, recent Annapolis chatter has indicated that it will be tightly focused on redistricting.

The legislature convenes for its regular 90-day session in January.

julie.bykowicz@baltsun.com

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