ANNAPOLIS, Md. – Senate Minority Leader Steve Hershey has voiced strong opposition to a proposal by Maryland Democrats to implement a 2.5% sales tax on business-to-business services, intended to address the state’s budget deficit.
In a statement released Monday, Hershey contended that the proposed tax would increase operational costs for Maryland businesses, potentially prompting companies to seek services from neighboring states to avoid the additional expense. He argued that with much of Maryland located within an hour’s drive of other states, businesses might find it more cost-effective to outsource services elsewhere, thereby undermining local enterprises.
“This is just another example of a policy that solidifies Maryland as one of the most unfriendly states for businesses,” Hershey stated. “This new tax will put Maryland businesses at a distinct disadvantage to competitors in other states while driving up their operating costs.”
The proposed 2.5% sales tax on services is part of a broader fiscal strategy to address a projected $3 billion budget shortfall for fiscal year 2026. Governor Wes Moore’s administration has introduced a series of tax reforms aimed at increasing state revenue without raising existing sales or property taxes. These reforms include restructuring individual income tax brackets, increasing the top marginal tax rate, introducing a 1% surtax on capital gains for high-income households, and reducing the corporate tax rate from 8.25% to 7.99% over a two-year period starting in 2028.
The proposal to tax services has elicited concerns from various business organizations. The Maryland Association of Certified Public Accountants (MACPA) warned that such a tax could introduce complexity into the tax system, increase administrative burdens, and make Maryland less attractive to businesses. They emphasized that small businesses, which often rely on outsourced services, would be disproportionately affected, potentially hindering their growth and competitiveness.
Similarly, the Maryland Chamber of Commerce launched the “Fair Opportunity Maryland” campaign to oppose the proposed tax on services. The Chamber argued that expanding the sales tax to essential services, such as car repairs, legal fees, and home maintenance, would drive up everyday costs for both families and businesses, thereby stifling economic growth.
Governor Moore, in his recent State of the State address, acknowledged the fiscal challenges facing Maryland and emphasized the need for tax reforms to make the system simpler, fairer, and pro-growth. He highlighted that, for the third consecutive year, there would be no increases in sales or property taxes. The Governor also underscored efforts to close corporate tax loopholes to facilitate a reduction in the corporate tax rate, aiming to make Maryland more business-friendly.
As the legislative session progresses, the proposed sales tax on services is expected to be a focal point of debate, with lawmakers weighing the potential economic implications against the necessity of addressing the state’s budgetary shortfall.
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please, no more taxes!