SB 1045 — Sales and Use Tax: Taxable Business Services — Alterations
Status: Hearing scheduled March 12, 2025 (3:00 p.m.) — referred to Budget & Taxation
Introduced: February 15, 2025 (Sen. Hettleman). Companion: HB 1554. Effective date in bill: July 1, 2025.
Purpose / Intent
To expand Maryland’s State sales and use tax base by designating a defined set of business-to-business (B2B) services as taxable and to impose a 2.5% State sales and use tax on those services. The change is intended to raise revenue and bring certain service transactions into the sales tax base.
Key provisions
- Adds a NAICS‑based list of specified services to the statutory definition of “taxable service” when BOTH the provider and the purchaser are business entities.
- Imposes a specific tax rate for these services: 2.5% of the taxable price (Section 11–104(l)).
- Expands the statutory definition of “taxable price” to explicitly include labor or service consideration (subject to enumerated exclusions).
- If another (higher) sales tax rate already applies to a sale of tangible property, digital products, or other taxable services, the higher rate controls.
Enumerated services to become taxable (selected, by NAICS descriptions):
- Accounting, bookkeeping, billing, payroll (NAICS 5412)
- Office support services (NAICS 561110, 5614, 561910) (with some current exceptions)
- Employee/contractor placement (NAICS 5613)
- Data & IT services; system/app software publishing (NAICS 518, 519, 5415)
- Consulting (NAICS 5416) and experimental development (NAICS 5417)
- Photography, design, printing (NAICS 541420, 541430, 541490)
- Lobbying, public relations, marketing (NAICS 5418)
- Landscaping and nonresidential building/property maintenance (NAICS 561210, 5616, 5617) (subject to current exclusions)
- Heavy truck/bus repair (8111); other repair services (8112, 8113)
- Financial planning, tax preparation (5239, 5412); appraisal (541990)
- Sports/performing arts advertising; valet/parking services (812930) (excluding public parking garages)
(Full statutory text uses NAICS codes to delineate covered services.)
Fiscal impact (per Maryland Department of Legislative Services)
- Large revenue increase to State funds:
- General Fund: +$833.6 million (FY2026), rising to +$1,245.3 million (FY2030).
- Blueprint for Maryland’s Future Fund (BMFF): +$110.5 million (FY2026), rising to +$171.4 million (FY2030).
- State administrative costs: modest ($~$0.48 million FY2026; ~$0.31 million FY2030) for implementation/administration.
- Local government: estimated NO direct fiscal effect.
- Small businesses: potentially meaningful impact (increased costs, administrative/compliance burdens).
The revenue estimate accounts for partial first‑year collections (assumes 75% of steady‑state collections in FY2026) and potential behavioral responses (reduced purchases, cross‑border diversion).
Who is affected
- Businesses that PROVIDE or PURCHASE the enumerated services in Maryland; tax applies only when both parties are business entities.
- End customers who may face pass‑through price increases if businesses raise prices to cover tax.
- State budget/education funding (BMFF) will receive additional revenue; state tax administration costs will increase marginally.
Implementation, timing, and procedural notes
- Bill sets July 1, 2025, as the effective date for the tax expansion.
- Uses NAICS (2022 edition) to define covered services, which provides specificity but may require taxpayers to map activities to codes.
- Procedural status at time of summary: referred to Budget & Taxation with a March 12th hearing. Companion bill HB 1554 is pending in the House.
Considerations / likely effects
- Broadens the sales tax base toward B2B services, raising substantial new revenue but increasing compliance needs for service providers and purchasers.
- Because the tax is limited to transactions where both parties are businesses, many consumer‑facing services and some professional services (unless specifically listed) remain untaxed.
- Potential for economic behavior changes (service purchases from out‑of‑state providers, pricing adjustments, contract renegotiation).
