Business leaders in Annapolis said a proposed tax on services makes the state less business-friendly. (Photo by Bryan P. Sears/Maryland Matters.)
Business owners gathered in Annapolis on Wednesday said they are tired of being villainized by the same lawmakers who view them as a source of easy money.
For the second consecutive year, business owners arrived at the state capitol to oppose a proposal to impose a sales tax on services. The late-filed, pared down proposal would raise as much at $940 million next year — and $1.4 billion by fiscal 2030 — by imposing a 2.5% sales tax on services provided by a specific set of businesses to other businesses.
They aired their grievances over the course of a day that began with a late-morning news conference followed by hours of testimony before House and Senate committees where more than 400 businesses signed up in opposition.
“One of the most frustrating aspects of this debate is hearing legislators refer to businesses as bad actors, or stating that they’re not paying their fair share,” said Kimberly Prescott, founder and president of Columbia-based Prescott HR, at the morning event.
“Let me be clear: The businesses that I work with are not bad actors,” she said. “They’re hard-working employers that do the right thing for their employees and their communities. This kind of rhetoric discourages business owners from staying in Maryland, let alone expanding here.”
Prescott and others said businesses are at a breaking point.
In recent years, they’ve weathered a pandemic. The state has increased the minimum wage and imposed mandates for paid leave and other programs. Many of those mandates require professional services to ensure compliance — the same services targeted by the proposed tax, said Rebekah Olson, CEO of the Maryland Association of Certified Public Accountants.
“This bill is a tax on compliance itself,” Olson said. “Hiring a CPA to ensure you’re meeting your tax obligation? Now taxed. Paying for payroll services to ensure your employees are paid appropriately and on time? Taxed. Bringing in a consultant and new software to actually implement this very bill? Now taxed.”
Mary D. Kane, president and CEO of the Maryland Chamber of Commerce, said the bill is yet another hurdle thrown up by lawmakers.
“Instead of creating opportunities for businesses to recover and grow, the state is continually using them as their ATM machine,” Kane said. “This is our moment because we’ve been taxed enough.”
A Department of Legislative Services analysis released Tuesday said that House Bill 1554, sponsored by Del. David Moon (D-Montgomery), and the identical Senate Bill 1045, sponsored by Sen. Shelly Hettleman (D-Baltimore County), highlighted 12 services that would be hit by the new tax, raising $940 million in fiscal 2026. Tech services and consulting account for 66% of the total in the first year, the analysis said.
Both the House and Senate hearings Wednesday featured moments of tension and drama.
Moon said the bill is one option to address the state’s ballooning budget deficits: The state faces a projected $3 billion gap for fiscal 2026, which doubles to more than $6 billion in fiscal 2030. And those estimates came before President Donald Trump’s administration began its sustained, rapid-fire series of cuts of federal spending and employment.
Maryland stands to lose more than any other state as a result of Trump administration cuts, Moody’s Ratings reported this week. Senate President Bill Ferguson (D-Baltimore City) said those cuts could spark a “Maryland recession.”
Lawmakers have less than four weeks to craft a state spending plan, even as they brace for more federal budget and a potential shutdown.
“This sucks, right?” said Del. Joe Vogel (D-Montgomery), a member of the House Ways and Means Committee. “We’re here in this position not because of what we’re doing but rather because of the consequences of an administration in D.C.”
The crowd objected, with many speaking over Vogel, saying “No” and preventing him from finishing the sentence.
House Ways and Means Committee Chair Vanessa Atterbeary (D-Howard) gaveled the session back to order, calling for attendees to restrain themselves or be removed.
Moon, while testifying on his bill, turned at one point to speak to an audience filled with business owners, many of whom clearly favored a budget solution involving cuts.
“To the folks that were just groaning: I feel that groaning I totally get it,” Moon said. Atterbeary asked him to not address the crowd, but Moon continued, saying that lawmakers are also making “billions in cuts.”
“I promise you we are doing billions in cuts. I promise it. They’re slowing the Blueprint [education reform plan]. There’s billions in cuts. More are coming. We have to make a decision with what to do with what’s left,” he said.
“The unemployment rolls are doubling by the moment. It’s going to be folks — employees and contractors — coming through the system. We know that for a fact. The $280 – $350 million [revenue reduction] that was announced by the Board or Revenue Estimates was a floor. It’s a floor. It was not factoring in whatsoever any private sector cuts,” Moon said. “Big cuts are coming to Maryland, rest assured.”
In the Senate Budget and Taxation Committee, Vice Chair Jim Rosapepe (D-Prince George’s and Anne Arundel) sparked a tense exchange with the owner of a small IT business when, after hearing from a panel of opponents, he asked for suggestions to balance the budget.
“If we don’t do this [service tax], we need to come up with about $1 billion in cuts beyond what the governor has proposed or other revenue,” Rosapepe said. “So, I’d appreciate to know what billion-dollar revenue source would you suggest we substitute for or what billion dollars of cuts you’d suggest.”
YOU MAKE OUR WORK POSSIBLE.
Darren Clark, owner of Clark Computer Services, said the sales tax proposal would “stifle” small businesses.
“You’re doing a transaction versus thinking long term,” Clark said.
“With all due respect, we are thinking long term,” Rosapepe replied.
Rosapepe later said he would not ask again, but left the question open for opponents to answer.
“I’m asking all the witnesses if they don’t want this … I personally would like specific suggestions of alternative revenue sources or cuts,” Rosapepe said.
“I think if you were sitting in my business with 40 employees you might have to start letting go, you’d think a lot differently,” Clark said. “But you’re sitting up on your perch and you’re thinking this is easy. Most of us are operating on thin margins already. You’re going to make it worse.”
It was at that point, Senate Budget and Taxation Chair Sen. Guy Guzzone (D-Howard) ended the exchange.
“We’re going to move on,” Guzzone said.