Gov. Wes Moore’s recent executive order to strengthen Maryland’s business climate is a bold and commendable step toward making our state a beacon of economic competitiveness. The MACPA stands in full support of these efforts, which aim to foster innovation, attract businesses, and enhance our workforce.

There is one looming threat, though, that could undermine these goals: the introduction of a sales tax on professional services.

Complexity and burdens for Maryland businesses
Imposing a sales tax on services would inject layers of complexity into Maryland’s tax system. CPAs, who are at the forefront of helping businesses navigate tax compliance, know this all too well. Consider these scenarios:

• A CPA firm providing tax planning for a client operating in multiple states would face challenges in determining which portions of their services are taxable in Maryland versus other jurisdictions.
• Small businesses relying on outsourced services — from marketing to legal counsel — would either absorb higher costs or pass these on to consumers, stifling growth and competitiveness.
• Tax administration for services rendered virtually or across state lines becomes a logistical nightmare in a post-pandemic world where physical location is fluid.

These challenges would lead to increased administrative burdens, greater compliance costs, and higher risks of disputes and audits, making Maryland a less attractive place to do business.

Small businesses and economic growth
Small businesses form the backbone of Maryland’s economy, yet they stand to lose the most under a service tax. Unlike larger companies with in-house resources, small businesses often outsource professional services. Taxing these services disproportionately increases their costs and diminishes their ability to compete, innovate, and grow.

Moreover, taxing services often leads to tax pyramiding, in which the same economic activity is taxed multiple times at different stages, increasing overall costs for businesses and consumers. This hidden cost directly conflicts with Gov. Moore’s goal of making Maryland’s economy more competitive.

A threat to competitiveness
Gov. Moore’s executive order explicitly seeks to “enhance Maryland’s economic competitiveness” and “attract and grow businesses,” but a sales tax on services would do the opposite. By increasing costs and administrative hurdles, Maryland would be at a competitive disadvantage compared to neighboring states that do not tax professional services.

In today’s interconnected economy, businesses and consumers can easily seek services in tax-friendlier jurisdictions, effectively exporting Maryland’s economic activity and job opportunities elsewhere. This outcome would directly counteract the governor’s vision of expanded “work, wealth, and wages for all Marylanders.”

Our call to action
As CPAs dedicated to fostering a thriving Maryland economy, the MACPA urges lawmakers to reject any proposal to impose a sales tax on services. Such a measure threatens the very goals outlined in Gov. Moore’s executive order and places undue burdens on businesses, particularly small ones.

Instead, let’s focus on policies that simplify compliance, foster growth, and position Maryland as a national leader in economic innovation. Together, we can ensure that Maryland’s business climate remains robust and competitive for generations to come.

What are your thoughts? Let’s ensure Maryland’s economic strategies align with our shared vision for success.