Maryland, Nebraska heading in opposite directions on sales tax collection
By Kay Bell • Bankrate.com

Making movies in Maryland has gotten cheaper, no doubt pleasing award-winning writer-director Barry Levinson.

The Maryland Comptroller of the Treasury has ruled that the state's sales and use tax does not apply to items or services directly used in film production. That includes not just the filming, but post-production aspects of feature films, commercials, television projects and other creative endeavors.

A few rules apply:

• The products must be sold to a certified film producer or production company. That means that Uncle Joe will still have to pay sales tax on the tape he uses in making his annual holiday videotape.
• The project must be one intended for nationwide commercial distribution. So here again, Uncle Joe is out of luck because he sends his tape free to relatives across the country.
• Distribution of a project via the Internet doesn't count for sales tax exemption purposes.

For film makers who meet the requirements, products that are exempt from Maryland's sales and use tax include camera equipment, cranes, make-up, special effects supplies, short-term vehicle rentals, and video and sound recording equipment.

Tax-exempt film-related services include editing, film processing, sound mixing, voice-overs and computer graphics.

The comptroller also listed items and services where tax still must be collected. These include: office supplies and furniture, bottled water, crew uniforms, and hotel rooms and lodging. Services where tax will continue to be collected are catering, bodyguards, cleaning and mobile telecommunications.

Levinson, a Baltimore native, regularly films projects in his home state, such as the movies Diner, Liberty Heights and Wag the Dog, and television's Oz and Homicide. The new sales tax breaks should save him some cash on his next Maryland-based cinematic venture.

And vendors who provide the exempt services and material won't have to worry about filing the tax paperwork.

Unfortunately, Maryland moviegoers won't see the savings passed along at the ticket window.

Nebraska may be taxing more products
In Nebraska, however, one state lawmaker wants to expand his state's sale tax base.

State Senator Kermit Brashear believes Nebraska's 76 sales-tax exemptions are too many. Right now feed grain, newspaper and magazine subscriptions, farm machinery, bull semen, tomato and other garden plant seeds, sodas sold at high school football games, use of coin-operated washers or dryers, and state lottery tickets are among the items exempt from sales tax.

But the Omaha lawmaker has not yet worked out just which items he wants added back to the taxable list. Brashear says he is still developing his proposal and will make the details public during the early days of the 2001 legislative session.

If the state collects more in sales tax, Brashear contends that Nebraskans would see lower property and income tax bills. He says that the state could raise $600 million by imposing sales tax on items that are currently taxed in 13 other states. Lawmakers, he argues, could then cut the average homeowner's property tax bill by $700 and cut state income taxes by 24 percent.

Others are not so sure. Independent statisticians estimate that about 10 percent of the taxes paid by a typical Nebraska family are sales taxes, 10 percent are state income taxes and 17 percent are property taxes.

Plus, lobbyists for special tax-exempt interests are sure to vigorously fight any wider sales-tax bill. "Once exemptions are gained and put into the state's statutes, the very first threat to repeal those just brings the beneficiaries out of the woodwork," notes John Jordison of the Nebraska Tax Research Council.

And Brashear will have to convince Nebraska taxpayers of his plan's merit.

Sales taxes are not popularly reviled, even though they are regressive, meaning they are not based on earnings or ability to pay. Rich Nebraskans pay the same 5-cent state sales tax as poorer residents. But because the tax is collected in a pay-as-you-buy fashion, tax experts say people tend to forget just how much they pay on a yearly basis.