February 26, 2020,

Oppose HB 1628!

 

The Chamber is very concerned about House Bill 1628: Sales-and-Use Tax, Rate Reduction and Services—a bill that would shift the tax burden to Maryland businesses while driving up costs for all consumers.

This piece of legislation 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: legal services, accounting services, realtor services, home improvement, gym memberships and auto services—just to name a few. HB 1628 would result in a massive tax increase of $2.6 billion for Marylanders, the largest single tax increase in Maryland history.

That’s $2.6 billion out of our pockets and a devastating blow to economic growth and hardworking small business owners and their families in Maryland. Taxing services of all types would result in the following five reasons:

  1. Penalizes small businesses and the Gig Economy. 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. There has been a significant growth of the Gig Economy with people becoming self-employed to offer a wide range of services. These businesses will have to incur additional costs just to do business and to implement new tax-reporting mechanisms, which will reduce their income.
  2. Double taxation. By taxing services many goods and services will be taxed as business or personal income and also be hit with the new sales tax which leads to higher consumer costs.
  3. Puts Maryland at a 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. None of our competitor states in the region place a sales tax on services. In fact, only Hawaii, New Mexico and South Dakota do.
  4. Impact on Lower Income Individuals. 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 will go toward sales taxes.
  5. Difficult to enforce. There will be geographic challenges, if an accountant is serving a client who owns gas stations in Maryland, Virginia and Washington, D.C., “it is unclear what state the service is being delivered from and what state the service is delivered to,” according to the Maryland Association of CPAs.

The 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 five reasons that are outlined above. The Chamber urges the General Assembly to reject this legislation and develop other sources for funding that does not primarily place the burden on Maryland businesses.