Maryland Lawmakers Consider New Taxes on Businesses and Digital Services 3

As Maryland grapples with a significant budget deficit, state legislators have introduced a series of proposals aimed at increasing tax revenue, primarily targeting businesses and digital services. These plans include a new tax on business-to-business (B2B) services, a gross income tax on data brokers, and a renewed push for worldwide combined reporting within the state’s corporate income tax system.

Proposed B2B Services Tax:

Bills H.B. 1554 and S.B. 1045 propose a 2.5 percent tax on a range of B2B services, including accounting, IT, consulting, and asset management. This tax, lower than the state’s general sales tax rate, would apply when both the service provider and the buyer are businesses.

Critics argue that taxing B2B services violates principles of neutrality and transparency, leading to tax pyramiding and disguising the true cost of government. They contend that this tax would ultimately burden consumers with higher prices and make Maryland less competitive for businesses. Fiscal notes estimate potential revenue gains between $944 million and $1.4 billion, but opponents warn of significant economic drawbacks.

Data Broker Gross Income Tax:

H.B. 1089 and S.B. 904 propose a 6 percent tax on the gross income of data brokers. While projected to generate $90 million to $100 million annually, the revenue is earmarked for specific funds, with a small portion allocated to privacy protection.

Opponents argue this tax creates a double taxation burden on businesses already subject to the state’s corporate income tax. They also assert that the ultimate cost will be passed on to Maryland consumers.

Worldwide Combined Reporting:

The Fair Share for Maryland Act of 2025 (H.B. 1014 and S.B. 859) reintroduces mandatory worldwide combined reporting for corporations starting in 2029. If passed, Maryland would be the first state to implement this policy for all unitary groups.

This proposal has been criticized for adding complexity to the corporate tax system, increasing transaction costs, and potentially leading to double taxation. Revenue effects are uncertain, and some argue it could even negatively impact state revenue.

Addressing the Budget Deficit:

Maryland faces a projected $3 billion budget deficit in fiscal year 2026. While Governor Moore has proposed spending cuts, legislators are exploring various revenue-raising options. Critics argue that the proposed taxes on business inputs and increased corporate tax complexity could harm the state’s competitiveness.

Alternative solutions, such as moderately increasing the sales tax rate and broadening the sales tax base to include final consumption services, are suggested as more neutral and transparent approaches.

Conclusion:

Maryland lawmakers are faced with the challenge of balancing budget needs with the potential impact on businesses and consumers. The proposed tax measures have sparked debate about the best approach to addressing the state’s fiscal challenges while maintaining economic competitiveness.