Legislative alert: Sales taxes on professional services introduced
Last night we were notified of a new bill that was featured in a Baltimore Sun article, Maryland would expand sales tax to professional services to pay for Kirwan school upgrades, under House leaders’ plan. Del. Eric Luedtke, a Montgomery County Democrat who is House majority leader, said he will introduce the Bill, HB 1628, "Sales and Use Tax — Rate Reduction and Services" — that is reported to include taxes on professional services — specifically, accounting, tax, legal, and engineering, among others. It also includes a provision to reduce the sales tax rate from 6 percent to 5 percent and has an effective date of Jan. 1, 2021.
We will be meeting with Del. Luedtke, who spoke to us at CPA Day in Annapolis and is the sponsor of the bill. We predicted this was a high risk due to the need to fund the Kirwan commission for education.
This is different than prior years due to several factors, including the turnover of leadership in the House and Senate and several new committee chairs. This is fundamentally different as it comes from the House leadership and is reported to have the support of the leadership (committee chairs) in the House of Delegates.
We are working on a meeting with the bill's sponsor and will advise our next steps once we see the actual language and speak to the sponsor.
If the bill is as we expect, our position will be what we discussed in town hall meetings and at CPA Day in Annapolis.
- It puts Maryland businesses and CPAs at a competitive disadvantage. Every business would be forced to pay 5 percent more for CPAs’ services. None of our neighboring states have such a tax, and only three states (with much smaller populations) that we know of — New Mexico, Hawaii and South Dakota — have enacted such legislation.
- This seems like a tax on tax compliance. Most of the services provided by CPAs and accountants are required by federal and state law to comply with existing tax laws and reporting requirements. In essence, this would be a form of double taxation.
- We are concerned about the cost, complexity, and enforceability of this type of legislation. Five other states — Michigan, Florida, Minnesota, Massachusetts, and Utah — passed and then repealed similar laws for this very reason.
- The bill violates five of the MACPA’s 12 principles for good tax policy, which are outlined in this blog post.
Be ready to contact legislators as we follow the hearing schedule for the Ways and Means Committee.
Keep checking our blog for updates...