O'Malley wants to put sales tax on gas

Gov. Martin O'Malley wants to apply Maryland's 6 percent sales tax to gasoline, a change that at current prices would add 18 cents a gallon to the cost at the pump.

The increase — to be phased in over three years —would be on top of the 23.5 cents per gallon gas tax the state has been charging since 1992. The change would require the approval of the Maryland General Assembly, where its prospects are uncertain.

O'Malley's proposal — which comes as he also is calling for higher income taxes and sewage treatment fees — drew cries of protest from the service station industry and Annapolis Republicans, among others.

"It shows how out of touch this governor is with everyday Marylanders who are struggling to pay their bills and make ends meet and keep their businesses open and meet payroll," said House Minority Leader Anthony J. O'Donnell, a Southern Maryland Republican.

O'Donnell said the increase would cause businesses to raise the price of other goods and services as their transportation costs go up.

But O'Malley's gas tax plan was praised by business leaders who have argued that Maryland desperately needs more money for highway, bridge and mass-transit projects.

"I think that the business community is overall very pleased and excited that the governor is willing to throw his political weight and influence behind this," said Greater Baltimore Committee President Donald C. Fry.

O'Malley, a Democrat, told WTOP radio Monday that he prefers to move away from the traditional flat per-gallon tax to one based on a percentage of the price. The change would protect transportation revenues from being eroded by inflation. The governor said transportation projects funded by that revenue are needed to relieve traffic congestion.

"There is no one that's going to do this for us. Bridges are not like trees, that grow taller and stronger with age," he said.

O'Malley's proposal may not be coming at a propitious time. Gas prices in the state have been on the upswing in recent weeks, increasing 22 cents over the past month to an average of $3.48 Monday. AAA Mid-Atlantic is projecting that they could reach $4 by late spring. In past years, proposals to raise gas taxes have been put on the table early in the year, only to see support wither amid rising spring prices.

Service station industry officials, who generally oppose any type of gas tax increase, contend the shift to a sales tax is more onerous and complicated than an increase in the cents-per-gallon charge.

"It'll put more of a burden on the retailer and make us much less competitive than our surrounding states," said Pete Horrigan, president of the Mid-Atlantic Petroleum Distributors Association.

O'Malley also is calling for a series of other revenue-raising measures that would dig deeper into the pockets of Marylanders. He is proposing an increase in income taxes for the highest-earning 20 percent of households to help close a $1 billion revenue shortfall. He has also called for effectively doubling the state's $2.50-a-month "flush tax" to pay for upgrades to water and sewer systems.

"I see it as a tough sell, especially in the House of Delegates," Senate President Thomas V. Mike Miller said of the gas sales tax plan. "But we've got to have revenues for our roads, bridges and transportation systems. Something's got to happen. We are going to have to find a reasonable solution to our problem."

House Speaker Michael E. Busch said it was good to have a transportation plan on the table but added that he will have to study the proposal and hold discussions before reacting.

"For any transportation initiative to be successful, you're going to need the full support of the major county executives," Busch said, listing Montgomery, Prince George's, Howard and Baltimore counties and Baltimore City. Leaders from all but Baltimore County have testified in favor of a higher gas tax to let the state restore local highway revenue to local governments — assistance that's been scaled back significantly during the economic downturn.

Even with support from the counties, the governor's proposal faces opposition in Annapolis, including from some in his own party.

Joseph Shapiro, a spokesman for Comptroller Peter Franchot, said his boss is "adamantly against" any increase in gas taxes now.

"This is the wrong time to be delivering a hit to family budgets that are trying to regain their financial footing," Shapiro said.

Under the governor's plan, the gasoline sales tax would go from 2 percent to 4 percent to 6 percent over three years. O'Malley spokesman Rick Abbruzzese said the proposal would also include a capping mechanism to limit the amount of a tax increase if prices spike. Abbruzzese said the administration is still working out details of how that cap would work.

Abbruzzese said the sales tax would be based on an average retail price, but applied at the wholesale level and thus would be built into the price at the pump — much as the current per-gallon tax is. Gasoline is now exempt from the sales tax.

Based on an average retail price of $3.49, the administration said the tax would amount to 18 cents per gallon after three years. The petroleum association's Horrigan said he believes the added cost would be at least 21 cents. Either outcome would bring the total state and local taxation on a gallon of gas to the range of 40-45 cents.

That wouldn't be the highest in the country, but it would be too high, as far as Michael Stachowski is concerned.

Stachowski, who commutes to Baltimore every day from his home in York, Pa., said gas in Maryland is about 15 cents a gallon cheaper than in his home state. The governor's proposal could erase that savings.

"It will be too expensive for anyone to get to work," Stachowski said. "I try to pinch every penny in my pocket that I can, and the government keeps taking the pennies out of my pocket."

One frequently heard objection to proposed gas tax increases is that in the past, money raised for transportation projects has been diverted to balance the state budget. The GBC's Fry said it is critical that any new transportation revenue be put in a legal "lockbox" so that can't happen again.

The governor indicated Monday that he would support a proposal to protect the state's transportation fund from future transfers to balance the budget. He did not say whether that so-called firewall should take the form of a statute or the constitutional amendment that some lawmakers believe is needed.

A blue-ribbon commission on transportation funding made adoption of such a protection its primary recommendation in a report that called on the state to raise an additional $875 million a year to address a backlog in transportation projects.

The panel estimated last year that applying the 6 percent sales tax to gasoline would raise $613 million for transportation — roughly three-quarters of its goal.

Abbruzzese said the governor believes that amount is sufficient for now. He said O'Malley does not plan to propose any of the other major revenue-raisers suggested by the commission, such as an increase in the vehicle registration fee.

"This is somewhere in the middle, but it's what he believes is a reasonable, balanced approach," he said. Fry said business leaders would be satisfied with that target.

The commission had recommended a 15-cent increase in the traditional gas tax — phased in over three years, coupled with increases in the tag fee and titling tax.

Transportation advocates have long contended that the traditional gas tax has become insufficient as vehicle mileage has increased.

"A traditional gas tax, I think we all understand, is a declining revenue source," Abbruzzese said.

In effect, the governor's proposal calls for taxing the same purchase twice in different ways. Maryland would not be alone in doing so. At least nine states apply sales taxes on top of a basic cents-per-gallon tax, according to AAA. Several of those, including California and Michigan, have pegged that rate at 6 percent.

While business leaders have been contending for years that an infusion of transportation revenue is overdue, the issue still doesn't have the urgency of the governor's proposals for balancing the budget.

Busch said meeting that goal — a constitutional requirement — will be a higher priority for the Assembly.

"The first thing they have to do is pass the budget, and then we'll work on other initiatives," Busch said.

Baltimore Sun reporters Annie Linskey and Peter Hermann contributed to this article.