State legislators should take a careful look at the lame-duck governor's last-minute pitch to repeal the "snack tax", which imposes the 5 percent sales tax on certain snack foods.
Gov. William Donald Schaefer proposed the legislation, while touring the Frito-Lay pretzel factory-warehouse in Aberdeen last week, to improve Maryland's bad reputation with business.
This abrupt about-face by Mr. Schaefer, after he originally sponsored the snack tax in 1992, was tied to a long-standing complaint by Frito-Lay Inc. that it could quadruple the current workforce level at Aberdeen (to 600 workers) if only Maryland's onerous tax were eliminated.
That's a questionable contention. Given the boom in snack food sales and the fact that the Aberdeen facility supplies a multi-state regional market, Frito-Lay won't delay economically rational expansion just because Maryland taxes its snacks. In this highly competitive market, Frito-Lay will expand (or not) according to its sales, costs and profits; the effect of Maryland's tax on revenues is minuscule.
Frito-Lay has repeatedly used the snack tax to explain delays in utilizing the $20 million Aberdeen plant. Operations began 18 months after the plant was built, employment lagged behind announced plans, equipment was moved from Aberdeen to other Frito-Lay plants. Corporate restructuring and efficiencies at other plants influenced these delays, but the company kept pointing its finger at Maryland's snack tax as the culprit.
Frito-Lay went so far this summer to wangle $16,000 in tax credits, plus a monthly sewer fee reduction, from the city of Aberdeen, as an inducement to add 30 jobs to the production line. The incentives were offered to offset the state snack tax impact, city fathers said.
There are good reasons to repeal the levy. It discriminates against certain snacks (baked crackers and cupcakes aren't taxed, for example) and it is a major bother for distributors and merchants, who must collect extra pennies and decide which items must be taxed. The fiscal impact is still imprecise, maybe ++ $12 million, but less than 1 percent of sales tax revenues. And the tax was enacted, Mr. Schaefer noted, as a desperation revenue raiser.
Legislative leaders appear willing to repeal the tax, but not because of this grandstanding gesture of the exiting governor. A two-year phaseout is likely. But legislators should consider the budget and views of incoming Gov. Parris Glendening, and obtain employment commitments from Frito-Lay, before finally crunching the munchie tax.