Business-to-business tax faces fierce opposition: It's the 'wrong tax at the wrong time'

ANNAPOLIS, Md. (WBFF) — Lawmakers questioned the sponsor of a controversial business to business tax plan during a House committee hearing Wednesday that was filled with fierce opposition from small and large businesses alike.

Del. David Moon sponsored House Bill 1554 which seeks to implement a 2.5% tax on services provided by one business to another. While the proposal is not clear what type of business would be subject to the tax – something Del. Moon said he knows need clarification and is open to changing – a fiscal analysis estimates the tax could generate up to $833.6 million by fiscal year 2026 and up to $1.2 billion by fiscal year 20230.

“It’s been keeping me up at night frankly the last week as we close in on us needing to make a decision,” he said. “Nobody likes taxes, nobody likes doing this.”

Del. Moon said the impetus of his bill came as more impacts from the Trump administration are realized in Maryland, though he acknowledges he introduced a similar measure last year due to the brewing budget crisis.

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According to a new Moody’s report, obtained by FOX45 News, cuts to federal workforce and office space “pose a greater threat to Maryland than any other state” in the country. The report comes on the heels of the state reducing revenue estimates by $280 million for the current and next fiscal years. Decreased tax revenue because of federal job cuts will exacerbate Maryland’s financial woes, according to Moody’s.

The closer to Washington, D.C., the bigger the impact. Federal wages account for more than one-fifth of gross income for Maryland’s counties closest to D.C. State officials previously estimated that at least 28,730 federal jobs in Maryland will be cut. Headquarters for the National Institutes of health, the Food and Drug Administration, Centers for Medicare and Medicaid Services, National Oceanic and Atmospheric Administration, and the National Security Agency are all in Maryland.

However, Del. Moon said the budget crisis in Maryland is not new and has been forecasted before the change in the White House. That’s why, he said, he believes there needs to be more cuts made to the budget in addition to revenue options.

“With the floor falling out to our fiscal ship, we need more options,” Del. Moon said.

Republicans pushed back on the idea of taxing business in the state and argued while no one wants to see more taxes, Gov. Wes Moore’s priority of growing the private sector will be hindered by this effort.

Del. Jason Buckel, the House Minority Leader and member of the Ways and Means Committee, said the proposal will “create tremendous adverse consequences” and could result in the taxes being passed to the consumer.

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“The only reason the bill is under such serious consideration is became our colleagues here in Maryland and in the Democratic Party really refuse to get serious about cutting form programs they have instituted over the last five or ten years,” Del. Buckel said before the hearing.

Gov. Moore’s budget proposal called for $2 billion in cuts and lawmakers are expected to cut at least $400 to $500 million more. Del. Moon said he believes more should be cut from the budget and reiterated that his proposal is just one idea lawmakers have to address the fiscal fiasco.

Representatives from small businesses and large corporations alike packed the hearing room Wednesday, given just 90 seconds to plead their case to the panel of lawmakers.

Paul Nolan, vice president for tax, government affairs and strategic real estate for McCormick, said “this is the wrong tax at the wrong time.” When public sector jobs are being cut at the federal level, Nolan said this tax will burden the private sector too, which will “generate less private sector jobs.”

While keeping the global headquarters of McCormick in Maryland is important, “any element of our plant not relating to the actual production could be moved,” Nolan said while explaining the impact of the proposed tax plan.

Rebekah Olson, CEO of the Maryland Association of CPAs, said services her members provide aren’t optional, and the bill “is a tax on compliance itself.”

“This bill disproportionately impacts small businesses,” she said. “This bill is bad policy and is bad for Maryland’s economy.”

Jim Starke, the vice president of hotel operations for the Best Western PLUS in Howard County, said he employs between 40 to 50 people. The proposed 2.5% tax proposal would mean additional tens of thousands of dollars annually in overhead, he said.

“Unlike government, we can’t just snap our fingers and increase our top line,” Starke told the committee.

Del. Moon said he’s open to changes to the bill, including carving out sectors that would be subject to the tax itself. But leadership has indicated the bill is likely to move forward at least in some capacity.

The state’s economy has changed over the years and is less dependent on goods, argued Senate President Bill Ferguson. Because of that evolution, the state’s tax system should reflect that 70% of Maryland’s GDP is through services now, he said.

“We are very seriously considering all options to both balance our budget and protect against the looming cuts coming from the Trump Administration,” Sen. Ferguson said Tuesday when asked specifically about the business-to-business tax.

Meanwhile, Republicans are gearing up for a fight as the final month of session unfolds.

“This a priority to defeat, no question about it,” House Minority Whip Jesse Pippy said Wednesday.

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