Maryland business groups celebrated a major victory Thursday after a House of Delegates subcommittee voted unanimously to kill a proposed new tax that would have raised prices for professional service providers including hairdressers, real estate agents, architects and lobbyists.
The bill, which sparked an intense lobbying battle, proposed slapping a new 5% sales tax on professional services, while lowering Maryland sales tax on goods from a percentage point to 5%. As the state scrambles for money funds for improving public education, an analysis estimated the new tax could generate a net $2.9 billion per year by 2025.
However, lawmakers on a House Ways and Means subcommittee late Wednesday night decided to drop the idea after the tax bill faced powerful opposition from a number of service organizations and Republican Gov. Larry Hogan.
Harford County Association of Realtors CEO Kathy McFadden, whose members rallied in Annapolis against the new tax before Wednesday’s vote, said the state’s real estate industry already pays $9 billion worth in taxes to the state annually.
“We’re not against any education,” Ms. McFadden said. “It’s just that, as the real estate industry, we feel we’ve paid our fair share of taxes.”
Ms. McFadden added, “Schools are very important for the housing industry because a lot of people want to be in the best schools, and in order to have the best schools, we have to have the funding for those schools.”
Business groups said the service tax vote was a test of the state’s reputation as a business-friendly state. Many say Maryland suffers in comparison to regional rivals, especially Virginia, in establishing the business and tax climate to attract companies looking to expand.
Four states — Hawaii, South Dakota, New Mexico, and West Virginia — levy a broad tax on service providers, while most states only tax specifically enumerated by law, according to the tax service Avalara.
But while many Maryland businesses are celebrating last night as a win, Mike O’Halloran, state director of the National Federation of Independent Business, the nation’s leading small business lobby, said the larger war is not over. He noted some Democrats in Annapolis are talking of a smaller, restructured tax to raise education revenues.
“While we are very pleased that the committee decided to reject expanding the sales tax to virtually every professional service in Maryland, we remain concerned the legislature is now focusing on levying that tax on small businesses in a select group of industries,” Mr. O’Halloran said in a statement. “We warned the General Assembly against exempting certain industries over others, explaining that this would be tantamount to the legislature picking winners and losers.”
Delegate Eric Luedtke, a Democrat from Montgomery County and a chief supporter of the bill, said funds generated from the services tax would have been earmarked for state education goals set by the recent Kirwan Commission. The Kirwan Commission, headed by a former chancellor of Maryland’s public university system, proposed a series of changes to better prepare Maryland students for college or the workforce.
The unanimous subcommittee rejection, Mr. Luedtke joked to The Baltimore Sun, was a case of “bipartisanship in action.”
“In a decade in the legislature, I’ve never done more important work than helping pass the [education plan] and figuring out how to fund it,” Mr. Luedtke tweeted Wednesday night after the vote. “I’m honored to have the opportunity to do this work.”
Mr. Luedtke said Annapolis still faces the challenge of finding a way to fund the proposed education reforms, which includes increasing teacher pay and supporting schools in lower-income areas of the state.
In a series of tweets, Mr. Luedtke explained the committee is still weighing alternative routes for funding, including an increase in tobacco tax and nicotine products and a tax on digital business activity conducted in the state.