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In Maryland, a contentious proposal to impose a 2.5% sales tax on specific business services has ignited debates among stakeholders, particularly among technology and consulting firms. This initiative, introduced recently in response to a looming budget deficit, has divided opinions between those fearing financial strain and those advocating for it as a necessary measure to protect vulnerable populations.
Kelly Schulz, the CEO of the Maryland Tech Council, emphasizes that this sales tax could compel numerous businesses to close and others to relocate outside of Maryland. Her organization, representing approximately 800 members, is particularly concerned about how this tax will impact the tech sector, which is already grappling with high operational costs.
According to an analysis by the Department of Legislative Services, nearly a dozen services would collectively contribute around $944 million in sales taxes by fiscal year 2026, with technology and consulting services alone facing a nearly $625 million burden. Schulz argues that such a financial hit undermines Governor Wes Moore’s initiative to bolster the private sector, especially in burgeoning fields like life sciences and information technology.
“Governor Moore has repeatedly expressed the importance of investing in strategic industry sectors. This additional tax, however, runs counter to those efforts and poses a risk to our growth objectives,” Schulz stated in her forthcoming testimony for a House hearing.
As the budget discussions unfold, Governor Moore has yet to announce his stance on the service tax, despite its introduction as a mechanism to address a projected $3 billion budget gap. In his interactions with reporters, Moore highlighted priorities including providing middle-class relief, fostering a business-friendly environment, and investing in human capital.
For Schulz and other business leaders, the stakes are high. They argue that Maryland is already a costly state in which to operate, and further taxation could exacerbate challenges in attracting and retaining businesses. The legislative analysis suggests that the impact on small businesses could be significant. Schulz bluntly asserts, “This proposal positions Maryland at a disadvantage when it comes to business growth and retention, and could further elevate operational expenses in an already expensive state.”
In a show of solidarity, over 400 businesses plan to testify against the bill, which encompasses firms from quaint eateries like Chick & Ruth’s Delly to major corporations such as Under Armour and Northrop Grumman. Testimonies will be restricted to just 90 seconds each, adding an element of urgency to their opposition.
Later today, the Senate Budget and Taxation Committee will hold discussions on Senate Bill 1045, which mirrors the House bill. Analysts predict that if enacted, the sales tax could generate over $1.4 billion by fiscal year 2030—a factor that advocates of the tax cite as a significant component of closing the budget gap.
House Majority Leader David Moon (D-Montgomery), who is the lead sponsor of the House bill, remarked that the current proposal is much narrower compared to a previous attempt to tax all services. He expressed uncertainty about which categories of services will ultimately remain in the legislation, as the committee will review them closely.
Moon clarified that the intention behind the bill is not centered solely on revenue generation but rather on addressing the immediate budget deficit while preparing for potential federal funding cuts.
As Maryland navigates these challenging fiscal waters, the debate surrounding the proposed sales tax on business services continues to unfold, with significant implications for the state’s economy and its future business landscape.
Read More: 2025 Maryland Income Tax Plan: How New Changes Could Impact Middle-Class Families
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