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Small Business Services Tax: Short-Term Fix, Long Term Problem for State Economy

Mar 5, 2025

Small Businesses Bear the Biggest Burden for Newly Proposed Tax. Here's What Maryland Businesses and Consumers Need to Know:

Maryland lawmakers are considering legislation (HB 1554/SB 1045) that would impose a new 2.5% sales tax on business-to-business (B2B) services, including accounting, IT support, consulting, marketing and numerous other professional services that businesses rely on daily.

Hearing for HB 1554 is scheduled Wednesday, March 12 at 1:00 p.m. Hearing for SB 1045 is March 12 at 3:00 p.m. Testimony sign-ups for both hearings, including the option to testify virtually, will be accepted from 8:00 a.m.–6:00 p.m. on Monday, March 10. When signing up, please sign up for both the House and Senate versions of the bill.

Services to be Taxed

Accounting, payroll and bookkeeping services
Office administrative support services
IT services, data processing and web hosting
Employee and contractor placement services
Consulting services
Scientific and development services
Photography, design and printing services
Marketing and PR services
Landscaping and property maintenance
Repair services (electronics, machinery and vehicles)
Financial planning and tax preparation
Appraisal services (non-real estate)
Valet and parking services

Economic Impact

Job Losses Inevitable: Every dollar diverted to this new tax is a dollar not invested in workforce growth. Economic models predict significant employment contraction, particularly among small businesses and service providers.

Consumer Price Surge: Economic research from Towson University's Regional Economic Studies Institute confirms these costs will be passed directly to Maryland consumers through higher prices for everyday goods and services.

Competitive Disadvantage: Maryland already ranks 46th in the Tax Foundation's State Business Tax Climate Index, and as the 3rd most expensive state to do business in (per CNBC’s Top States for Business 2024 survey). None of our neighboring states tax these business services, creating a powerful incentive for businesses to relocate across state lines.

Why This Matters to Everyday Marylanders

This isn't just a business issue. When service businesses face higher costs, those increases are passed on to consumers through:

Higher prices at local stores, restaurants and service providers
Increased costs for healthcare and professional services
Fewer job opportunities as businesses cut back or relocate
Reduced wage growth as businesses absorb new tax expenses

The Bottom Line

The proposed small business services tax in HB 1554/SB 1045 trades short-term budget gains for long-term economic damage. While it may generate immediate revenue, it undermines Maryland's competitiveness against neighboring states that don't tax these services. The result? Businesses relocate, jobs disappear and, ironically, tax revenue ultimately declines. Maryland needs sustainable budget solutions that strengthen our economy rather than policies that drive businesses across state lines.