JD, Principal, Practice Leader, State and Local Tax (SALT) Services
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Maryland bill would extend sales and use tax to professional services
Update: On March 4, 2020, a Maryland House Subcommittee voted to reject this bill, which would have applied sales tax to most services. The vote was unanimous and bipartisan. The bill had been expected to generate significant revenue for the state – $2.9 billion per year by fiscal year 2025 – and assist with paying for investments into Maryland’s public education system, but it had been opposed by numerous Maryland business owners and by Governor Larry Hogan.
The Maryland House of Delegates recently introduced new legislation, Maryland House Bill 1628, that would expand the Maryland sales and use tax base to include almost all services, as well as reduce the tax rate from 6% to 5%.
Amounts charged for services are currently generally exempt from the sales tax, with some exceptions specified by law. The proposed legislation would define “taxable service” as “any activity engaged in for a buyer for consideration,” which means that the sales tax would apply to most professional services, including legal, accounting, engineering, and financial services.
However, the legislation would exclude the following services:
- Educational services;
- Healthcare or social assistance services;
- Services provided by a religious organization;
- Grant-making or giving services;
- Services provided by a social advocacy organization;
- Services provided by a civic or social organization; and
- Services provided by a business, professional, labor, or political association.
What Does CohnReznick Think?
This bill was introduced to reduce Maryland’s sales tax rate and to broaden the sales tax base to include professional services in an effort to help pay for the Kirwan Commission’s recommended revisions to Maryland’s public education system. Several professional organizations oppose the bill.
If enacted, the legislation would take effect Jan. 1, 2021.
Corey Rosenthal, JD, Principal, State and Local Tax Services Leader
646.625.5729
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