Maryland lawmakers are considering a new tax on certain business-to-business services as they scramble to plug a $3 billion budget deficit. The move, met with strong opposition from business groups and Republican leaders, could generate up to $1 billion if enacted.
A Tax Proposal with High Stakes
State legislators are advancing a plan to impose a 2.5% tax on select services, including lobbying, accounting, tax preparation, and some IT-related services. The proposal, introduced simultaneously in both chambers, comes as the General Assembly faces mounting pressure to close budget gaps and prepare for potential federal funding cuts.
Del. David Moon (D-Montgomery) and Sen. Shelly Hettleman (D-Baltimore County) are leading the charge, framing the tax as a necessary step in stabilizing state finances.
“This comes at a time when we need to generate a menu of options for dealing with a large budget problem,” Moon said. “In the past, we’ve gone to other options. I think we’d be unwise not to put additional options on the table at the moment.”
Business Groups Brace for Battle
The reaction from the business community has been swift and critical. Industry leaders argue that such a tax would disproportionately hurt businesses and drive companies to seek services outside Maryland. The Maryland Chamber of Commerce and other business advocates are mobilizing to fight the measure, calling it an unnecessary burden that will make the state less competitive.
- Critics warn that the tax could lead to job losses and higher costs for businesses already grappling with inflation and economic uncertainty.
- Some fear that businesses will relocate services to neighboring states where such taxes do not exist.
- Proponents argue that without new revenue streams, the state will be forced to make deep cuts to essential programs.
Legislative Timeline and Roadblocks
The House of Delegates is in the final stages of revising the state budget initially proposed by Gov. Wes Moore (D) in January. The House had planned to send its version of the budget to the Senate by March 6, but the deadline was extended to mid-March to incorporate updated revenue forecasts and assess the impact of a potential federal government shutdown.
If the services tax is to be included, a hearing could take place as early as next week. But Republican lawmakers have already made it clear they intend to fight the proposal at every step.
Partisan Divide Widens
Republican leaders are framing the proposed tax as yet another example of excessive taxation that could stifle Maryland’s business climate.
“In the Maryland Democrats’ obsession to raise taxes, they have now concocted a new business-to-business sales tax that will make it even more expensive to operate a business in Maryland,” said Senate Minority Leader Stephen S. Hershey Jr. (R-Upper Shore). “With most of Maryland being an hour or less from the border of another state, many companies will seek out-of-state businesses to provide a variety of services to avoid paying this new tax.”
Democrats counter that the state must explore every possible revenue source to address financial shortfalls, particularly with federal funding in question. While they acknowledge concerns from businesses, they argue that maintaining essential services outweighs the downsides of the tax.
Potential Revenue and Economic Impact
Lawmakers estimate that taxing select business-to-business services could bring in up to $1 billion annually, depending on how broadly the tax is applied. The following table outlines some of the services under consideration and their estimated revenue contributions:
| Service Category | Estimated Revenue Contribution (in millions) |
|---|---|
| Accounting & Tax Prep | $250M |
| Lobbying Services | $150M |
| IT & Computer Services | $400M |
| Legal Services | $200M |
Some experts suggest that while the tax could provide short-term relief, it may create longer-term challenges if businesses shift services out of state.
What’s Next?
With budget negotiations in full swing, the fate of the services tax remains uncertain. If the House includes it in its budget proposal, the Senate will have to weigh in, setting up what could be a fierce debate in the final weeks of the legislative session.
For now, business owners, lobbyists, and lawmakers are watching closely as Maryland navigates an increasingly complicated fiscal landscape. The final decision could have lasting effects on the state’s economy and tax policy for years to come.
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