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Posted at 7:34 PM ET, 09/28/2010

Md. sales tax riddle: Why pay $11.83 to save $1?

By washingtonpost.com editors

By Maria T. Murphy
Gambrills

I was intrigued by the Dundalk, Md., parents who told former governor Robert L. Ehrlich Jr. that since the sales tax increase took effect under Gov. Martin O’Malley, their shopping trips to Delaware had become more frequent [“In Md., sales tax debate is a definer,” front page, Sept. 26]. It appears to me that the families are spending a great deal of time and money to save very little.

I calculated the distance from Dundalk’s center to the closest Delaware city with a big-box retail store: Newark. These cities are 61.5 miles apart and the most direct route (Interstate 95) takes about an hour and 15 minutes. Part of this trip includes tolls, but I disregarded that cost for the purposes of this calculation.

Assuming someone is driving a vehicle that averages 25 miles to the gallon and that gas is $2.56 a gallon, the gas for this 2 1/2-hour round trip will cost about $12.64. Alternatively, the closest big-box retail store to Dundalk’s city center is four miles away. At the same gas mileage, that round trip costs 82 cents in gas and takes 18 minutes.

Let’s say the consumer spends $100. In Delaware, there is no sales tax. At Maryland’s tax rate of 5 percent under Mr. Ehrlich, the consumer would have spent $5 in tax; at the O’Malley rate, they would spend $6. So, according to this example, Dundalk consumers are paying an additional $11.83 in gas and are spending an additional two hours and 12 minutes of their time in traffic to avoid paying $1 in tax.

Congratulations to Delaware for a brilliant marketing campaign that has so effectively convinced some Marylanders that they will save money by traveling there to shop.

By washingtonpost.com editors  | September 28, 2010; 7:34 PM ET
Categories:  HotTopic, Maryland, taxes  
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Comments

Perhaps it is more than just the small savings, perhaps it is a small but meaningful protest against a tax that the consumer/taxpayer doesn't feel is fair.

I know I'd do that, I have done that.

Posted by: Lively | September 29, 2010 7:37 AM | Report abuse

Yes sounds like typical "teabagger" logic at work to me. "Avoid paying that dollar increase in taxes by spending $11 to go to Delaware. Too funny.

Posted by: sickofit3 | September 29, 2010 7:39 AM | Report abuse

Lively @ September 29, 2010 7:37 AM wrote "Perhaps it is more than just the small savings, perhaps it is a small but meaningful protest against a tax that the consumer/taxpayer doesn't feel is fair.

I know I'd do that, I have done that."

You can go broke spending $11.83 to save $1. What's that great line from Forrest Gump again ...

Posted by: AMviennaVA | September 29, 2010 9:23 AM | Report abuse

The calculations are faulty. The majority of drivers don't get 25 mpg on I-95. I get over 40 mpg at highway speeds (using cruise control and no A/C), and I'm just driving a Sonata. 25 mpg is what I get in city driving with stop lights. So, Murphy rigged the calculations to make this trip sound much more expensive that it is. And I have no doubt that if you're going to drive that long, you'd stock up and buy more than $100 worth of goods, especially if you go to a big box store. Using REAL highway mileage and a more realistic amount of money spent on goods, you'd get a closer calculation, and might even see how to SAVE MONEY with a once-monthly trip to Delaware. But, of course, this doesn't fit the point that Murphy wants to make, so she rigged the stats to prove her point.

Posted by: WashingtonDame | September 29, 2010 11:17 AM | Report abuse

Anyway, I think the Comptroller's rule on paying sales tax on out-of-state purchases is if it averages more than $100/month, though that may just be for businesses. So they may owe taxes anyway.

Posted by: anaximander471 | September 29, 2010 12:43 PM | Report abuse

always fun to spin things to make a point, huh? maybe there is more to this story - I have a son that lives in Delaware. I always shop when I visit him. I will hold off on shopping for clothes until I visit him, then I hit the outlets and save on sales tax. Sure its not a ton of money, but it sure feels good to walk away with a little more in my pocket.

Posted by: jjtwo | September 29, 2010 12:49 PM | Report abuse

Here's another calculation error in the math-challenged Ms. Murphy's column. If there's no sales tax in Delaware, where does she get a savings of $1? Even if you use the lower sales tax rate of 5%, the savings from a $100 shopping spree in Delaware is $5, not $1. And let's face it, nobody pays use taxes; they are completely unenforceable from consumers.

It's hard to believe that, even given the low standards for "local opinions," this little deceit-filled item make it past somebody at the Post.

Posted by: WashingtonDame | September 29, 2010 3:04 PM | Report abuse

$100 wont get you much clothes these days. Shoes start at $35, Jeans are $15-35 and shirts are $10-30. For one person just getting shoes, shirt and pants, thats $100 on the outside....and thats only one outfit! And that's not including underwear and socks!

When I was in high school back in the '80's, my family would spend $250-300 on clothes alone for 2 high school aged children...one boy and one girl. That would probably equate to at least double now.

Using your math and looking at a more realistic $600 for 2 high school children, that would be a savings about $13 after gas. Not huge, but when you are on a shoe-string budget, you take any benefit you can.

Is it right? No. Should the Governor raise taxes to "adjust" for the lost revenue? Probably not. If you don't like it....vote him out of office.

Posted by: squirejoe | September 29, 2010 3:59 PM | Report abuse

"Here's another calculation error in the math-challenged Ms. Murphy's column. If there's no sales tax in Delaware, where does she get a savings of $1? Even if you use the lower sales tax rate of 5%, the savings from a $100 shopping spree in Delaware is $5, not $1. And let's face it, nobody pays use taxes; they are completely unenforceable from consumers.

It's hard to believe that, even given the low standards for "local opinions," this little deceit-filled item make it past somebody at the Post."

I think her point was to illustrate that with a reasonable purchase of $100, going to Delaware under Ehrlich saved you $5. Going under O'Malley saved you $6, thus the savings difference of $1.00. I don't see the deceit you believe is there.

To the other points, just recrunch the numbers with higher mpg as WashingtonDame suggests (say 30 mpg avg, can't disregard all those SUVs out there), and up the amount bought, say $250. Also add in the toll that she left out to further create a different scenario.
- The JFK Hwy (I-95) to Newark will set you back $5 as a toll (northbound only).
- Driving 123 miles round trip at 30 mpg average uses 4.1 gallons of gas, multiplied by $2.56 a gallon gives you $10.50 in gas.
- Add that to the $5.00 toll and you get $15.50 in travel expenses. Plus 2.5 hrs of your time.
- At $250 dollars purchased, the trip has saved sales tax of $12.50 (Ehrlich) and $15.00 (O'Malley). A difference of $2.50.
- Therefore you have spent $10.50 and a couple of hours of time to save an additional $2.50 in tax now versus when Ehrlich was in office.

Remember the Dundalk parents' point to Mr. Ehrlich as written in the article was that they were going to Delaware more often to save money since O'Malley raised the tax rate.

The savings fallacy still holds true unless you spend more, a lot more. If you are going to Delaware to protest sales tax or because you like the stores better, sure. But to claim you are saving money by going more often under O'Malley doesn't hold water unless you spend at least $1,500 each time. Running the same calculation at $1,500 purchased results in a tax savings difference of $15, $75 under Ehrlich and $90 under O'Malley...about the same as the travel expenses. Now about that time equals money thing...

Posted by: Antoine2 | September 30, 2010 10:52 AM | Report abuse

It is also worth noting that under the most basic tax avoidance calculation, a shopper would need to spend at least $250 under current sales tax, to make the trip break even with the above parameters. Anything above $250 in purchases, the more tax is avoided. I guess the next question could be whether Maryland should have sales tax at all since it is such an issue? How does Delaware generate their state revenue without sales tax? A topic for another day....

Posted by: Antoine2 | September 30, 2010 11:23 AM | Report abuse

I am the author of the opinion letter.

To WashingtonDame: you are correct, the math was faulty. My original letter -- including the math -- was changed by the Post copy editors and published without my corrections. Do you really think opinion pieces are published without edits? Not only did it make it past the editors, their edits are all over it. As for your charge that I "rigged the stats" and wrote a "deceit-filled" item; math errors do not equal either rigging stats or deceit.

My point was there is something called opportunity cost that consumers do not consider when making decisions about where to buy goods. Those costs include things like gas they use to drive out of the way to buy cheaper items or to save 1% in tax, as well as the time taken to make such trips. In my opinion is illogical and nonsensical for consumers to blame an increase of 1% in tax as the reason for making their over 100-mile and 2.5 hour round trips out of state more frequent, as was stated in the article to which I refer.

Thanks to Antione2 and others who got it.

Happy shopping, everyone!

Posted by: HappyGirl2 | October 2, 2010 11:08 AM | Report abuse

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