On February 20, 2020, the Maryland House of Delegates introduced House Bill 1628, which, if enacted, would reduce the Maryland sales & use tax rate from 6% to 5% and expand the tax base to include nearly all services, including personal and professional services.
If enacted, these changes would be effective on January 1, 2021. Initial estimates indicate these changes would generate approximately $2.6 billion per year in additional revenue for the State. These additional funds would be used to pay for the education reform that was outlined in the recommendations of the Kirwan Commission’s Report.
If enacted, this law would impact nearly every Maryland business. Currently, only select services are subject to Maryland sales & use tax. These services include, but are not limited to, cleaning of commercial buildings, credit reporting, background checks and security services.
Currently, there are only three states that broadly tax all or nearly all services. However, these states have implemented systems that tax a company’s gross receipts regardless of the nature of the sale. These gross receipts taxing systems are in lieu of a traditional sales & use tax system that Maryland and most other states operate under.
Other states with traditional sales & use tax systems have enacted and subsequently repealed broad based taxes on services for various reasons including the complexities associated with implementing and enforcing such changes.
Clearview’s State and Local Tax Professionals are actively monitoring this and other bills that could change the current sales & use tax landscape for Maryland businesses. If you have any questions regarding this bill and how it could impact your business, please contact Chris Tracy, CPA at (667) 207-8705 or Mike Ginski, CPA at (410) 415-9755.