Kelly Schulz, chief executive officer of the Maryland Tech Council, said a proposed tax on business services will force some business to close and others to leave Maryland. The 2.5% sales tax hits her association’s 800 members the hardest. (File photo by Danielle Gaines/Maryland Matters)
Maryland tech and consulting businesses would bear the brunt of a late-filed proposal to subject some business services to a 2.5% sales tax.
Nearly one dozen services would pay $944 million in sales taxes in fiscal 2026, according to an analysis released Tuesday by the Department of Legislative Services. In that first year, technology and consulting services would pay nearly $625 million.
Kelly Schulz, chief executive officer of the Maryland Tech Council, said the tax will force businesses in her industry to close or leave the state at a time when growing the private sector has become a focus of Gov. Wes Moore (D).
“Governor Moore has repeatedly spoken about making life science and IT strategic industry sectors for investment and the need to have a strategy to grow these sectors,” Schulz said in written testimony that will be delivered at a House hearing Wednesday. “We agree with the governor’s sentiment. However, the additional 2.5% B2B sales tax is in direct contrast to that goal and risks to undermine efforts to support these industries.”
Moore this year made diversifying the state economy and easing the state’s dependence on federal employment a top priority. He has not said whether he will support the service sales tax, which was introduced only last week as lawmakers scramble to close a $3 billion budget gap.
“We’re going through it and looking at it now, but I had three principles that I laid out when we first introduced our budget,” Moore told reporters last week. “And that was we had to be able to give middle class families a bit of relief, and we had to be able to make sure that we weren’t going to build the economy on their backs. The second was that we had to make it easier for businesses to be able to come here and grow and scale in Maryland. The third was that we have to invest in our people whatever proposals come out of this.
“If it meets those criteria, that’s a proposal that I will work with and I’m good with, but if it does not, that’s not a proposal that I am good with,” he said.
Ferguson warns of ‘Maryland recession’ as report says state has greatest risk from federal cuts
Schulz wrote that the General Assembly should “view its actions through a lens of economic competitiveness.”
The legislative analysis characterizes the effect on small business as “potentially meaningful.”
Schulz, in her testimony, is more blunt.
“This proposal will put Maryland at a disadvantage in growing, attracting, and retaining businesses, including those in the life sciences and technology sectors. Maryland is already a costly state to conduct business; this proposal would further exacerbate those operating costs,” she said.
Schulz is one of more than 400 businesses signed up to testify against the House version of the bill at a House Ways and Means Committee hearing Wednesday. The businesses, ranging from small companies such as Chick & Ruth’s Delly in Annapolis and Phillips Seafood, to Under Armour and Northrop Grumman, will be limited to 90 seconds of testimony each.
The Senate Budget and Taxation Committee will hold a hearing Thursday on the identical Senate Bill 1045.
Analysts project that the tax, as currently drafted, could generate more than $1.4 billion by fiscal 2030.
House Majority Leader Del. David Moon (D-Montgomery), lead sponsor of the House bill, said “the starting point for this year’s discussion was a much narrower bill” than the sales tax on all services he unsuccessfully proposed last year.
“Whether every category in here stays, I can’t tell you, because the committee is going to have to take a look at and figure out what they what they want,” said Moon.
Moon said he didn’t draft this year’s bill with a revenue target in mind.
“I think the hope is, and whether it’s this tax proposal or more cuts or additional different revenues than what this one’s proposed, I think the hope is to, obviously, we have to deal with the current $3 billion (deficit), and to try and leave some cushion for additional hits from the federal government,” Moon said. “The Board of Revenue Estimates write-down of $280 million or so was a floor. I think many of us are looking at what’s going on and anticipating significant additional revenue drops to be announced in the coming months.”
On Monday, Moody’s Ratings released a report that said Maryland was the most vulnerable state in the nation to ongoing federal budget cuts and employee layoffs. Senate President Bill Ferguson (D-Baltimore City) warned of the potential for a “Maryland recession” because of the cuts.
Maryland Chamber of Commerce President and CEO Mary D. Kane said the service tax proposal has united the business community.
“The overwhelming opposition from the business community isn’t about avoiding responsibility — it’s about preventing a policy that will do more harm than good,” Kane said in a statement. “A strong economy is the foundation for sustainable funding, and we remain committed to working on solutions that address the budget deficit without driving businesses, jobs, and investment out of Maryland.”
The proposal appears to have some support in both the House and Senate. Ferguson, speaking to reporters Tuesday, said the bill deserves serious consideration.
Both Ferguson and Moon said the legislature will likely reach a compromise on a budget with more than $2 billion in cuts.
“This is one of the tougher parts of this job is when you have a deficit like this and trying to figure out how to get out of it,” Moon said. “We said at the beginning of this session, not everyone was going to be happy. Someone was going to have to take a haircut on the policy decisions coming out of here.”
He warned that failing to find revenues would result in important services being cut.
“If they’re ready to line up for a billion in additional cuts — we’re talking about DDA [Development Disabilities Administration], health care, things like that, things that people currently don’t seem to have an appetite for cutting — certainly they’re welcome to put things back in that posture,” Moon said. “Alternatively, we had all sorts of other tax proposals, itemized deductions, combined reporting, I-gaming. Those are all in the same committee.
“That same committee has heard all of these proposals,” he said. “Every single one of them is going to bring out different people who really don’t want it. So, I just think that’s where we are.”