The following information was shared by the Howard County Chamber of Commerce via email today:

LEGISLATIVE ACTION ALERT
SALES TAX ON PROPOSED ON PROFESSIONAL SERVICES
The House of Delegates is at it again. Yesterday, several House Democrats introduced a bill—HB 1628: Sales-and-Use Tax, Rate Reduction and Services—that would result in a massive tax increase of $2.6 billion for Marylanders, the largest single tax increase in Maryland history.

 

This piece of legislation would lower the sales tax from 6% to 5% but would expand that 5% sales tax to everyday services that have never been taxed before: legal services, accounting services, realtor services, home improvement, day care providers, gym memberships and auto services—just to name a very few.

 

That’s $2.6 billion out of our pockets and a devastating blow to economic growth and hardworking small business owners and their families in Maryland. Democratic leaders told the Baltimore Sun that an average family earning $80,000 per year would pay approximately $3 more per week under the expanded sales tax.
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Taxing services of all types is a bad idea. Here’s why:
  1. Discrimination against small and fledgling businesses. Small firms typically need to rely on outside services (legal, accounting, etc.) while larger companies can usually rely on in-house expertise that can provide these newly taxable services for no sales tax cost. Small and emerging companies will have to incur additional costs just to do business and to implement new tax-reporting mechanisms, which will limit their growth.
  2. Pyramiding taxes. Taxing services increases the potential for services and goods to be taxed more than once, which leads to higher consumer costs.
  3. Competitive disadvantage. States with service taxes are at a disadvantage when it comes to competing with states that don’t tax services. HB 1628 would discourage the use of Maryland services, as well as discourage companies seeking to expand or relocate here. Note that none of our competitor states in the region broadly tax services. In fact, only Hawaii, New Mexico and South Dakota do.
  4. Taxing services will disproportionately affect those who can least afford it. The tax rate is the same for all consumers, no matter their income. If more services become taxable, a larger portion of the disposable income of lower-income individuals than that of higher-income individuals will go toward sales taxes.
  5. Administrative burden. Service providers, many of whom are independent contractors or small business owners, will now have to face a new administrative burden. As the Maryland Association of Certified Public Accountants (CPAs) has pointed out, other states like Florida and Michigan have tried to tax a broad range of services only to quickly repeal them due to the complexity of administration, among other reasons.
  6. Difficult to enforce due to geographic challenges. For example, if an accountant is serving a client who owns gas stations in Maryland, Virginia and Washington, D.C., “it is unclear what state the service is being delivered from and what state the service is delivered to,” said Tom Hood, chief executive of the Maryland Association of CPAs, in the Baltimore Sun.
Note that House leadership has previously been adamant that an increase or expansion of sales, income and/or property taxes would not be necessary to pay for implementation of the Kirwan Commission’s education proposals.

 

ACTION REQUESTED:
We URGE you to call and write to your legislators and/or visit their offices to speak to them directly about the negative impact of this bill.

 

Attached, you will find a letter from the Maryland Chamber of Commerce that they plan to send to leaders in the House of Delegates. If you would like to sign on to this letter, please contact Ashley Duckman. You may also feel free to send the letter directly from your own business or organization or use it as a guide to draft your own personalized letter about why HB 1628 will have a direct negative impact on you and your business.
The Maryland Chamber will also be organizing a “drive-in” to protest HB 1628, so please stay tuned for more details. We have heard that the hearing will be scheduled for Monday, March 2.

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Just wow…lower the overall sales tax…sweet…but start taxing services like day care and other (most all) services provided by businesses of all sizes? Really…that is the direction we want to head?

I know more than a few parents likely to be upset by their EXTREMELY high day care costs going up with this new tax.

ARTICLE UPDATE: Day Care Appears To Be Exempt From Proposed Sales Tax Legislation On Professional Services In Maryland

I also wonder what this is going to do to all of the new work, tracking and reporting that will be thrown at small businesses with this legislation. This will put an additional burden and strain on small businesses already feeling the pressures day in and day out. Why add to the burden on small businesses?

I get that the legislators in Annapolis are looking to find a way to fund the Kirwan legislation…but is this really the best way?

Have thoughts…let me know in the comments.

Scott E

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4 COMMENTS

  2. James, are you saying –
    keep expanding the services the state offers, we will just tax our citizens more.

    For the past 20 yrs, the Annapolis delegation just keep coming up with more and more things and passing the cost to the tax payers and stakeholders.

    James, Do you just think of all of the things you would like to buy and then tell your employer I need more money because I need a new yacht or a much bigger house ?

    The state of MD has a golden revenue stream (ie, high paying gov’t jobs which are recession proof, large tax revenue from expensive real estate, casios & lottery revenue, plus others) but the legislator keep wanting to spend more than what is coming in.

    I wish the MD legislature would take more financial and fiscal responsibility instead of spending like a kid in the candy shop.

    • If you’re concerned about cost, you could advocate for a lower rate. It’s not an argument against expanding the sales tax to cover services.

  3. The biggest issue when you tax many of these intangible services like lawyers, CPAs, engineers, there is a significant cost of compliance that is often more than the tax itself. In fact, several large states like Michigan, Florida, and Massachusetts enacted this type of legislation and had to repeal it the next year due to the problems with reporting, collecting and enforcing the tax. It is also why almost no other states have this type of tax. The Maryland Association of CPAs is in opposition to this for the reason outlined in this blog post.

    https://www.macpa.org/maryland-sales-tax-on-services-proposal-violates-principles-of-good-tax-policy/

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