hearings for proposed tax legislation draw strong opposition in Annapolis

Dozens of MACPA members joined hundreds of other business leaders from throughout Maryland on Wednesday to testify in opposition to a legislative plan to impose a sales tax on business-to-business professional services.

In an effort to close an unprecedented $3.2 billion budget gap, lawmakers in both the Maryland House and Senate have proposed a 2.5% sales tax on a broad range of business-to-business professional services, including accounting, tax preparation, bookkeeping, and payroll services — core functions that businesses of all sizes depend on for financial stability and regulatory compliance.

If enacted, CPAs say these bills — House Bill 1554 and Senate Bill 1045 — will burden Maryland businesses with new costs, threaten jobs, reduce economic competitiveness, and ultimately increase prices for consumers. The MACPA urges lawmakers to reject this harmful legislation and instead explore alternative ways to address state revenue needs without stifling business growth.

"HB 1554 targets business-to-business transactions, but make no mistake: Maryland residents will ultimately bear the cost," testified Harold Mohn, CPA, regional managing director for UHY's Mid-Atlantic offices and chair of the MACPA's Legislative Executive Committee. “Businesses that face this additional expense will have no choice but to pass it on, increasing costs for consumers. Small businesses will be hit especially hard. They rely on external service providers for accounting and compliance, meaning they will be taxed on complying with this tax. This simply does not make sense and places an undue burden on the very businesses we need to thrive."

"This tax amounts to a 'tax on taxes' — a sales tax imposed on clients simply for seeking professional assistance in complying with tax laws and other statutory and regulatory requirements," added retired Maryland CPA Allen DeLeon, former chair of the MACPA's Legislative Executive Committee. "Big companies have in-house accountants and tax teams. Small businesses don’t. They rely on CPAs and consultants, and now they’ll have to pay extra just to stay compliant."

Wednesday's testimony was submitted both in person and online to Maryland's House Ways and Means Committee and the Senate Budget and Taxation Committee.

Representatives from more than 400 businesses throughout Maryland have voiced opposition to the bills, with more than 120 providing either in-person or virtual testimony on Wednesday. MACPA members responded overwhelmingly to the association's call for CPAs to oppose the harmful legislation.

A hidden tax on small businesses

While the proposed tax is being framed as a tax on service providers, in reality, the burden will fall squarely on small businesses — Maryland’s economic backbone. Large corporations can absorb these costs by maintaining in-house accounting, legal, and consulting teams. In contrast, small and medium-sized businesses rely on third-party providers for essential services such as financial reporting, payroll processing, tax compliance, and business advisory services.

“This tax places an undue burden on small businesses that are already operating on thin margins,” said MACPA CEO Rebekah Olson. “By increasing the cost of essential services, we risk stifling the growth and sustainability of these vital contributors to our local economy.”

Small businesses, which create the majority of new jobs in Maryland, will be forced to make tough decisions — either absorbing the extra cost, which could mean cutting back on hiring or other investments, passing these costs on to consumers, or even choosing to relocate out of Maryland. None of those scenarios benefit the state’s economy.

Broad economic consequences

If passed, the tax would have ripple effects across multiple industries, affecting job creation, consumer prices, and Maryland’s ability to compete regionally.

• Potential job losses: Increased business costs may force small enterprises to reduce their workforce or scale back on investments, leading to job losses and slowed economic growth. Professional service firms themselves may also struggle under the new tax, further impacting employment in these fields.
  
  
• Higher prices for consumers: Businesses facing higher operational costs will likely pass those costs on to consumers. This means higher costs for products and services across multiple industries, not just accounting or consulting, but retail, hospitality, and health care as well.
  
  
• Double taxation on businesses: Unlike a retail sales tax, which is typically imposed on final consumer purchases, a tax on business-to-business services results in “tax pyramiding.” This means taxes are applied multiple times throughout the supply chain, inflating costs at every level before a product or service reaches the end consumer. This unintended compounding effect distorts the tax system and creates an uneven playing field for businesses.
  
  
• Competitive disadvantage for Maryland businesses: Maryland would become one of the few states in the region to tax professional services. Neighboring states like Virginia and Delaware impose no such tax, making them more attractive destinations for businesses. This could incentivize Maryland businesses to relocate, resulting in job losses and a shrinking tax base.
  
  "This tax would make Maryland an outlier among neighboring states, incentivizing businesses to seek tax, accounting, and financial services elsewhere," Savedra Scott, CPA, CGMA, CrFAC, MSA, MBA, owner of Savvy Financial Solutions and secretary / treasurer of the MACPA's Board of Directors, testified on Wednesday. "We cannot afford to drive business across state lines, particularly when other states have attempted similar taxes and later abandoned them due to the administrative challenges and economic harm they caused."
  

The harm to professional services

The accounting profession, like other professional service industries, is critical to business health, ensuring compliance with complex regulations, tax laws, and financial reporting requirements. A tax on CPA services is, in effect, a tax on expertise — an additional cost imposed on businesses for seeking professional guidance.

Many Maryland businesses already struggle with compliance due to a labyrinth of tax codes and reporting obligations. Raising the cost of professional services may push some businesses — particularly small firms — to cut corners, leading to increased errors, missed regulatory deadlines, and even tax noncompliance.

“Businesses depend on CPAs to navigate an increasingly complex financial landscape,” said Olson. “A tax on CPA services is a tax on compliance, and that benefits no one — not businesses, not the government, and certainly not the public.”

The administrative nightmare

Beyond the financial burden, the proposed tax would create significant administrative complexities. The nature of professional services often involves cross-jurisdictional transactions, making it difficult to determine where the tax applies.

• How will firms handle services provided to out-of-state clients?
• How will businesses track and report taxable services accurately?
• How will Maryland enforce compliance for companies that may shift to out-of-state service providers?

These questions highlight the confusion and compliance costs businesses will face under the new tax regime.

A similar attempt to tax professional services in Florida resulted in such widespread administrative chaos and economic disruption that the state repealed the tax just six months after implementation.

Maryland’s history with sales tax expansion

Maryland has considered similar tax expansions in the past. The state enacted a sales tax on computer services in November 2007 but swiftly repealed it in March 2008 following intense taxpayer opposition. Now, HB 1554 and SB 1045 attempt to broaden the scope further by targeting professional services, despite evidence from other states showing that such measures lead to unintended economic harm.

A call to lawmakers: Reject HB 1554 / SB 1045

The MACPA urges Maryland legislators to reject these bills and focus instead on policies that support economic growth. Rather than imposing new taxes on businesses already struggling with inflation, supply chain disruptions, and workforce shortages, the state should explore alternative revenue solutions that do not place an undue burden on small businesses.

“We understand the need for sustainable state revenue, but taxing business-to-business services is the wrong approach,” Olson said. “Maryland should be fostering a business-friendly environment that encourages innovation, job creation, and economic expansion — not implementing policies that stifle growth and drive businesses away.”