MD Sales and Use Tax Proposal

MD House Bill 1628

On February 20, 2020, the Maryland House of Delegates introduced proposed legislation (Maryland House Bill 1628 [the Bill]) that would greatly expand the types of services subject to state sales and use tax (the Tax).

Under current law, amounts charged for services, including professional services, are generally exempt from the Tax, except for certain enumerated services. The Bill, however, would cause the Tax to apply to “any activity engaged in for a buyer for consideration,” while excluding only certain (i) educational services; (ii) health care or social assistance services; (iii) services provided by a religious organization; (iv) grant-making or giving services; (v) services provided by a social advocacy organization; (vi) services provided by a civic or social organization; and (vii) services provided by a business, professional, labor or political association.

Thus, the Bill would expand the Tax to apply to professional services, such as legal, accounting, engineering and financial services, meaning that such service providers would be required to collect the Tax from their clients and remit the Tax to the Comptroller of Maryland. 

One of the Bill’s sponsors indicated that this proposal could create new revenue to fund improvements in Maryland’s public school system. It should be noted that existing payors of the Sales and Use tax would experience a 1% reduction from 6% to 5%. However, If you provide a professional service, the cost to you or your clients will go up 5%. If you do not provide professional services, your cost to purchase those services could go up 5%. Granted, your cost of goods will decrease 1%, but overall this bill is expecting to yield an additional $2.6M in additional costs.

The more you know….