On the last day of the 2025 Maryland General Assembly session, a majority of General Assembly members and Governor Moore finally agreed on a $6.8 billion state budget package.
The agreement includes approximately $2 billion in budget cuts, and a wide range of new taxes, tax increases, new fees, and fee increases.
Taken together, the tax and fee changes are projected to generate approximately $1.8 billion in new state revenue.
One new tax that is the largest single source of projected new state revenue is a 3%
business-to-business sales tax for services provided by information technology (IT) providers.
Current projections are this new tax will generate approximately $482 million in new revenue.
The key words here are current and projections.
Achieving a balanced state budget for an entire fiscal year may be wishful thinking.
There is no guarantee if and when all the revenue from the new IT services sales tax will come in as projected.
Delegate Ben Barnes, chair of the House Appropriations Committee, was asked if he was confident about the projected revenue from this new sales tax.
He did not answer the question directly. Instead, he said, “We are super confident that the final budget compromise turns a massive structural deficit into a positive structural balance.”
It remains to be seen if that super confidence will hold until the end of the upcoming fiscal year.
Complicating matters is that between now and July 1 of this year, the Maryland Comptroller’s office will have to issue regulations to implement the new IT service sales tax.
Senate Budget and Taxation Committee Chair Guy Guzzone has already acknowledged, “It’s very complicated [the new IT service sales tax] and the comptroller will be figuring out how exactly that implementation occurs.”
Maryland Senate President Bill Ferguson has also said that he expects there will be a bit of a delay in the implementation of the regulations.
The budget bill compromise also includes a trigger for a special session to address the impact of any future Trump administration decisions that further reduce the historic and substantial flow of federal dollars into Maryland.
Largely missing during all the debate and deliberations on Annapolis leading up to the approval of this new IT service sales tax, was greater consideration of what-if questions.
What if greater consideration would have been given to estimates from the Cybersecurity Association of Maryland, that this new tax could result in IT service companies leaving Maryland?
What if this scenario is already being confirmed?
Maryland State Delegate Brian Crosby is the owner of an IT services firm formerly based in Maryland. During a recent speech on the House floor, he told his House colleagues in anticipation of this new IT service sales tax being approved, he had already decided to move his IT service business from Maryland to Virginia.
When asked later about how the new sales tax could impact his business, Crosby said, “All I can say is that within a year, we’d be bankrupt.”
Jacob Stokes, president of a fifty employee IT and software development company based in Columbia echoed that sentiment. He has said, “We’re going to have to leave the state. That’s our only option.”
What if greater consideration had been given to concerns raised by the Maryland Chamber of Commerce? The Chamber has suggested “Once Maryland starts taxing services, whether it’s tech, legal, marketing, or accounting, it becomes easier to expand these taxes to other sectors down the line.” They further suggest, “Today, it’s tech services. Tomorrow it could be any other service upon which Maryland businesses and consumers depend.”
What if greater consideration had been given to reports on all the businesses that have already have or are considering transferring their incorporation from Delaware due to what they perceive to be a hostile business climate there?
The current list includes Facebook, Walmart, AMC, Madison Square Entertainment, Pershing Square Capital Management, Simon Property Group, Dropbox, Meta, Trip Advisor, and Roblox.
What if final action on any tax legislation would be contingent upon the Maryland Comptroller providing legislators a report with details on the regulations and compliance standards for any new taxes, tax increases, new fees, and fee increases?
That would help avoid the consequences of accepting the thinking of former U. S. House Speaker Nancy Pelosi — “We have to pass the bill so you can find out what’s in it.”
What if this new IT service sales tax, coupled with legislative leaders rejecting Governor Moore’s proposal to reduce the corporate net income tax, derails Moore’s goal to reverse Maryland’s sluggish economic growth by reducing tax and regulatory burdens on businesses?
Going forward, Maryland is best served when every policy decision maker in Annapolis has a commitment and an opportunity to consider what-if questions which in turn helps ensure no final decisions are made using a deeply flawed “ready-aim-fire” approach.
David Reel is a public affairs and public relations consultant in Easton.
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