An Alert From the Maryland Chamber of Commerce on HB 1515: Sales-and-Use Tax, Rate Reduction and Services
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 Blueprint for Maryland’s Future education plan. However, HB 1515 would result in a massive tax increase of $2.6 billion for Marylanders, the largest single tax increase in state history.
That’s $2.6 billion out of the pockets of hardworking small business owners and their families in Maryland—and a devastating blow to economic growth.
The bill 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, including, but not limited to:
- Legal services; appraisal services
- Grocery delivery
- Gym memberships; personal training
- Accounting; financial planning
- Veterinary services; pet grooming
- Mold remediation; home cleaning
- Landscaping; tree removal
- Real estate services
- Closed-captioning services
- Dry cleaning; nail salons
- Online job posting services
- Home repair and improvement
- Barber shops; beauty salons
- Transportation; towing; parking
- Shipping and delivery services
- Auto mechanics
- Funeral services
- Advertising; PR; printing; media streaming
Taxing services of all kinds would result in the following destructive consequences:
- 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.
- Pyramiding taxes. Taxing services increases the potential for services and goods to be taxed more than once and for businesses to raise their prices, which leads to higher consumer costs.
- 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.
- 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.
- 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.
- 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., how do we determine what state is delivering the service and what state is receiving the service?
The Maryland Chamber recognizes the importance of education funding in the state of Maryland, but imposing taxes on everyday services should not be looked to as a solution for the reasons we’ve outlined above. For the economic security of our organizations and all Marylanders, we strongly urge the General Assembly to reject this burdensome legislation.
Frederick Chamber Insights is a news outlet of the Frederick County Chamber of Commerce. For more information about membership, programs and initiatives, please visit our website.