The private sector starts experiencing the ripples from the federal layoffs, with the legislators in Maryland introducing a proposal for business-to-business sales tax that would add a 2.5% charge on a wide range of professional services such as accounting and tax preparation, consulting, information technology, scientific services, landscaping, photography, truck repair, valet parking, and more.
Earlier this month, Moody's Ratings released a report that ranked Maryland as the number one state in the US in terms of vulnerability to federal budget cuts and employee layoffs. Senate President Bill Ferguson warned that the federal cuts may lead to a “Maryland recession.” The service tax proposal aims to generate additional revenues to address the $3 billion budget deficit.
In an analysis released by the Department of Legislative Services, it is estimated that the revenues from this measure can amount to $944 million in fiscal 2026. The change will primarily impact businesses operating in the technology and consulting services.
The business community, represented by organizations such as Maryland Chamber of Commerce, strongly opposes the proposal, warning about its potential to drive businesses, jobs, and investments out of the state. According to the CNBC’s Top States for Business 2024 survey, Maryland is the 3rd most expensive state to do business in.
The sales tax proposal titled Sales and Use Tax – Taxable Business Services – Alterations will be heard by the state Senate alongside other proposed measures which include itemized deductions, combined reporting, and even I-gaming.
Maryland is not the first state to entertain the idea of taxing professional services. Similar attempts were made in Florida in 1987 and Michigan in 2007. In both cases, the tax was repealed.