B2B Service Tax will Hurt Your Business
HB 1554 and SB 1045 propose an expansion of the sales and use tax on businesses to business at a rate of 2.5%. This B2B tax will be hit to business. This proposal can have “legs” since the General Assembly is scrambling to find money to balance the budget. It looks like there will be Committee Hearings on these bills next week.
Included on the list are taxes on accounting and tax preparation services, businesses that hire lobbying or public relations firms, permanent and temporary employment services; photography, design and printing; heavy truck and bus repair; appraisal services; sports and performing arts advertising. (A full listing of what is in and what is out is below. NAICS codes are being used to identify the types of businesses to be taxed ).
The proposals come as the General Assembly is working to finalize the budget by March 31st. They are grappling with solving a $3 billion deficit that seems to be growing every day due to potential budget cuts at the federal level.
This proposal isn’t just another tax — it’s a direct hit to Maryland’s small businesses. When a local restaurant, tech startup, or landscaping company has to pay more for accounting, human resources or IT support, they have two choices: raise prices on customers or cut costs elsewhere — often through job losses. That’s not an economic growth strategy. It’s an economic misstep.
Here are several alarming consequences that this tax proposal could cause:
A Blow to Small Businesses: Unlike large corporations, small businesses operate on thin margins and depend on outsourced services to operate. Forcing them to absorb new taxes on essential services like payroll, bookkeeping and technology support puts them at a severe disadvantage.
Competitive Disadvantage: This tax would make Maryland an outlier among neighboring states. Do we really want to see businesses relocate to Virginia or Delaware simply to avoid these additional costs? Every business that leaves takes jobs, tax revenue and economic vitality with it.
A Short-Term Fix That Hurts Long-Term Growth: While this tax may provide a temporary revenue boost, its long-term consequences will outweigh any short-term gains. Higher costs for businesses mean reduced hiring, lower wages and a weaker overall economy, which ultimately leads to lower tax revenues in the future.
A Precedent for More Tax Hikes: Today, this tax targets professional services like accounting and landscaping — but once this structure is in place, what’s next? Legal services? Healthcare?
Click HERE for a copy of HB 1554
Click HERE for a copy of SB 1045
HB 1554 / SB 1045 – Sales and Use Tax
Taxable Business Services
Summary of the NAICS codes that would be taxed at 2.5%.
List of Services
- Accounting, bookkeeping, bill, or payroll services under NAICS 5412.
- Office support services, including those described under NAICS Sector 561110, 5614, or 561910
- Exempts custom calling services provided in connection with basic telephone services, telephone answering services, and credit reporting.
- 561110 includes medical office, administrative, business, executive, hotel, industrial, dental office, physician and surgeon office, professional office, motel, office administration management services.
- 5614 notes, “This industry group comprises establishments engaged in performing activities that are ongoing routine business support functions for clients on a contract or fee basis, or serving other establishments of the same enterprise.”
- 561910 includes labeling, packaging, mounting, product sterilization services among others.
- A permanent or temporary employee or contractor placement, including a services described under NAICS Sector 5613.
- 5613 is generally defined as “employment services”
- A data or IT service described under NAICS Sector, 518, 519, 5415.
- 518 is “Computing Infrastructure Providers, Data Processing, Web Hosting, and Related Services”
- 519 is web Search Portals, Libraries, Archives, and Other Information Services
- 5415 is Computer Systems Design and Related Services
- A system software of application software publishing service described under NAICS Sector 5415.
- 5415 is Computer Systems Design and Related Services
- A consulting service described under NAICS Sector 5416.
- 5416 is Management, Scientific, and Technical Consulting Services
- An experimental development service described under NAICS Sector 5417.
- 5417 is Scientific Research and Development Services.
- A photography, design, or printing service, including a service described under NAICS Sector 541420, 541430, or 541490.
- 541420 is Furniture design services, Handtool industrial design services, Industrial design consulting services, Industrial design services, Packaging industrial design services, Tool industrial design services
- 541430 includes graphic art, design, medical art, etc.
- 541490 is clothing, jewelry, fashion design, etc.
- Lobbying, public relations, or marketing services described under NAICS 5418.
- Landscaping and nonresidential building or property maintenance service, including a service described under NAICS Sector 561210, 5616, or 5617.
- Exempts cleaning of a commercial or industrial building and security services for buildings.
- Heavy truck and bus repair services under NAICS Sector 8111.
- 8111 is Automotive Repair and Maintenance
- Repair services under NAICS 8112 or 8113
- 8112 is ” Electronic and Precision Equipment Repair and Maintenance” and 8113 is “Commercial and Industrial Machinery and Equipment (except Automotive and Electronic) Repair and Maintenance”
- Financial planning or tax preparation services under NAICS 5329 or 5412
- 5239 is “Other Financial Investment Activities” and 5412 is “Accounting, Tax Preparation, Bookkeeping, and Payroll Services”
- Appraisal services under NAICS 541990
- Doesn’t apply to real estate services.
- Sports or performing arts advertising services.
- Valet or parking services under NAICS 812930
- Excludes public parking garages.