Services tax added to ‘menu of options’ as state grapples with budget deficit, looming federal cuts

House Majority Leader David Moon (D-Montgomery), said a proposed tax on some business-to-business services “hard reality of the moment that we’re at right now.” (File photo by Bryan P. Sears/ Maryland Matters).

Legislators are preparing for a new round of battles with businesses intent on again stopping a proposed sales tax on some services.

The proposal — identical bills in the House and Senate — would tax certain business-to-business transactions including lobbying, accounting and tax preparation services and some computer and IT services. That could generate roughly $1 billion, depending on which services end up being taxed.

The bills come as the House is moving closer to finalizing its version of the budget before sending it to the Senate in less than two weeks, and at a time when the General Assembly is grappling with solving a $3 billion deficit and growing angst over potential budget-busting cuts at the federal level.

The bills, sponsored by Del. David Moon (D-Montgomery) and Sen. Shelly Hettleman (D-Baltimore County) propose a 2.5% tax on certain business-to-business services.

“This comes at a time when we need to generate a menu of options for dealing with a large budget problem,” Moon said. “In the past, we’ve gone to other options. I think we’d be unwise not to put additional options on the table at the moment.”

The House of Delegates is finalizing its changes to the budget proposed in January by Gov. Wes Moore (D). The House was originally scheduled to send its version to the Senate by Wednesday, but that timeline was pushed back until March 18 or 19 in order to build in time to adjust to updated state revenue projections, as well as the potential for a federal government shutdown.

If the House intends on including the sales tax expansion, a hearing would likely come next week.

The bill was immediately criticized by Republicans who have vowed to oppose tax increases this session.

“In the Maryland Democrats’ obsession to raise taxes, they have now concocted a new business-to-business sales tax that will make it even more expensive to operate a business in Maryland,” Senate Minority Leader Stephen S. Hershey Jr. (R-Upper Shore) said in a statement. “With most of Maryland being an hour or less from the border of another state, many companies will seek out-of-state businesses to provide a variety of services to…