Maryland Lawmakers Consider Taxing Services and Intellectual Property

Taxes | April 18, 2025

Maryland Lawmakers Consider Taxing Services and Intellectual Property

Maryland needs more tax revenue. Taxing business services and/or intellectual property and media rights could help the Old Line State fill a looming $3 billion budget gap.

Gail Cole

By Gail Cole.

Maryland needs more tax revenue. Taxing business services and/or intellectual property and media rights could help the Old Line State fill a looming $3 billion budget gap.

Taxing B2B services

Currently, Maryland’s 6% sales and use tax applies to only select business-to-consumer (B2C) and business-to-business (B2B) services, including credit card reporting services, pay-per-view television, and security services.

Maryland SB1045 seeks to apply a 2.5% reduced sales tax rate to the following services starting July 1, 2025. The NAICS (North American Industry Classification System) codes identify the specific industries that would be impacted.

  • Accounting, bookkeeping, billing, or payroll services (NAICS 5412)
  • Appraisal services (NAICS 541990)
  • Consulting services (NAICS 5416)
  • Data or information technology services (NAICS 518, 519, or 5415)
  • Experimental development services (NAICS 5417)
  • Financial planning or tax preparation services (NAICS 5239 or 5412)
  • Heavy truck or bus repair services (NAICS 8111)
  • Landscaping and nonresidential building or property maintenance services that aren’t already taxable (NAICS 561210, 5616, or 5617)
  • Lobbying, public relations, or marketing services (NAICS 5418)
  • Office support services that aren’t already taxable (NAICS 561110, 5614, or 561910)
  • Permanent or temporary employee or contractor placement services (e.g., NAICS 5613)
  • Photography, design, or printing services (e.g., NAICS 541420, 541430, or 541490)
  • Repair services (NAICS 8112 or 8113)
  • System software or application software publishing services (NAICS 5415)
  • Sport or performing art advertising services
  • Valet or parking services, other than a public parking garage (NAICS 812930)

The fiscal analysis for SB 1045 estimates taxing these services at 2.5% (rather than the 6% general sales tax rate) would increase state revenues by about $944.1 million in fiscal year 2026 and $1.4 billion in fiscal year 2030.

Even at a reduced rate, taxing B2B services is controversial. The Council on State Taxation argues that this tax proposal “violates several principles of sound tax policy” and creates “pyramiding and a lack of transparency to both consumers and policy makers.”

Brian Smith, Senior Government Relations Director at Avalara, explains the difference between taxing B2C versus B2B transactions. “I look at taxing B2C services as simply an expansion of the sales tax base. Taxing B2B services is different: It’s a tax on business inputs, the process of providing services to businesses.”

Smith says taxing the provision of services would be comparable to taxing the manufacture of products sold for resale. “Is the provisioning of services akin to manufacturing?” he asks.

Yet Maryland lawmakers are in a bind. While the state is planning to trim more than $2 billion from its budget, it will need to increase tax collections by roughly $1 billion to balance its budget. Sales tax and income tax are the only two taxes big enough to generate that amount of revenue.

Maryland’s sales tax is “woefully outdated”

During a Budget and Taxation Committee discussion of SB 1045 (March 12, 2025), Maryland State Senator Shelly L. Hettleman called Maryland’s sales tax structure “woefully outdated.” While goods and services made up roughly an equal share of the economy (50% each) when Maryland introduced sales tax in 1947, goods comprised just 37% of Maryland’s economy in 1997 and 31% of the economy in 2022.

Taxing more services would produce a “diversified revenue stream,” said Hettleman, and provide “a stable source of income even during economic downturns.”

Why tax the services listed above and not others? Several legislators speaking on behalf of SB 1045 pointed out that some of these services are taxed in other states. But they also said the list of services was open to discussion.

Businesses against broadening the sales tax base

Representatives from numerous businesses and organizations urged the Legislature to reject SB 1045. Many said taxing these services would be particularly hard on small businesses that need to purchase the affected services; larger businesses often handle many such tasks in-house.

Several people also said that by taxing some services but not others, the bill picks winners and losers. Responding to this criticism, Senator J.B. Jennings asked whether it would be better for Maryland to tax all services at an even lower rate. No one jumped at that.

Maryland may tax intellectual property and media rights

Taxing the B2B services listed above isn’t the only contentious tax proposal up Maryland’s sleeve. The amended version of HB 352 seeks to place a 3% sales and use tax on:

  • Data or information technology (IT) services (NAICS 518, 519, or 5415)
  • System software or application software publishing services (NAICS 5132)
  • The licensing of media or software rights and other intellectual property, including:
    • Rights to produce and distribute computer software protected by copyright
    • Rights to use intellectual property, including that protected by copyright or trademark
    • Sporting event broadcast and other media rights
    • Broadcast television programs
    • Specialty programming content distribution
    • Syndicated media content

While the bill proposes a reduced sales tax rate (3%) for the above, it allows for a higher rate: “If a different rate … could be applied to a sale or use of tangible personal property, a digital code, a digital product, or a taxable service, the higher rate shall apply to the sale.”

Maryland will probably face pushback on taxing intellectual property and media rights, as it has on taxing B2B services. But businesses will likely be pleased to learn the state has tabled a proposed retail delivery fee.

Maryland tables retail delivery fee

The first iteration of HB 352 included a 75-cent fee on retail deliveries of taxable tangible property in the state. That language was struck from the amended version of the bill.

Several other states are still considering retail delivery fees, which are proving to be a steady revenue stream for Colorado and Minnesota. Colorado’s $0.29-per-delivery fee generated $92.9 million in fiscal year 24, while Minnesota’s newer $0.50-per-delivery fee is projected to bring in $59 million fiscal year 25, its first year.

How will Maryland increase tax revenue?

Moody’s Ratings Agency predicts federal austerity measures to “pose a greater threat to Maryland … than to any other state.” Several members of the Budget and Taxation Committee said they don’t want to increase taxes, but they need to increase revenue somehow.

Thanks for reading CPA Practice Advisor!

Subscribe for free to get personalized daily content, newsletters, continuing education, podcasts, whitepapers and more…

Subscribe for free to get personalized daily content, newsletters, continuing education, podcasts, whitepapers and more...

Tags: state taxes, Taxes

Comments: 11

RichardApril 19 2025 at 6:41 am

How about reducing spending as a viable option?

Mary NoppenbergerApril 19 2025 at 9:51 am

Marylands new motto should be " If You Can Dream It We Can Tax It".

Mary C McclearyApril 19 2025 at 7:44 pm

That's not new, pretty sure that was popular with O'Malley, and the rain tax! Don't forget the rain tax. Here we go again. Miss you Hogan.

RichardApril 19 2025 at 8:01 pm

Stop giving everyone big raises and there would not be a shortage the big shots are way over pd

James WadkinsApril 19 2025 at 10:13 pm

We don't need more taxing!!!!! We need a hell of alot less spending!!!! What happened to our surplus????

JoeApril 19 2025 at 10:19 pm

The MD legislature and governor #nomoore are going to drive businesses and people out of the state. And to use out of state businesses to do everything they are trying to tax. I already go out of state for many things. And will even more now So they won't bring in the money that they are thinking. Which will make it even worse next year because they will have even less money. So they will have to come up with more taxes. How about you don't hire 5000 new state employees when you don't have the money to pay them. How about you don't try and build a red line. When you don't have the money for it. And it will only help the people of Baltimore who can already get around using busses. But they want everyone in the state to pay for it. How about you don't pass the kirwin plan when you can't pay for it. How about you don't spend down whatever surplus that governor Hogan left you. And spend another 3 billion dollars. With nothing to show for it. If you are going to spend our money. How about you build new power plants. Instead of closing the ones we have. And then still have to buy power from out of state. At an inflated rate. And does nothing to help with the pollution since we are buying it from states that still use fossil fuels. I am sorry. But Wes Moore and the MD legislature need to be voted out. They are going to make living in MD impossible. And even worse trying to open/ run a business

Concerned citizenApril 20 2025 at 1:14 am

Same comment. Try reducing spending first. Current tax burden is not sustainable. MD had a huge windfall from property tax but they have squandered all of it.

James vicariApril 20 2025 at 7:06 am

I'm just a little guy struggling in the construction industry. One day there's work one day. There's not what government doesn't realize is people are scared of spending on projects and trying to keep up with their home because of the rising cost of material and labor. I keep my labor down just to stay working and that puts me in the position of middle class to poor. I love Maryland and the Chesapeake Bay but I cannot stand the politicians or all. The people running the state way overpaid and very underworked no matter what. Excuse you give us we know better. I agree with most the other comments. Quit spending let your employees bring their own damn lunch. When you have office meetings and legislature meetings and stuff, stop buying breakfast. Bring yourself a bagel. Go to Wawa and get your own damn breakfast which is exactly what's being done all the time. Nobody ever pulls the taxpayers on a daily weekly monthly yearly basis and ask us do we want you to spend this money or not. You just blatantly decide what you want to do just like you did with the tools you and your easy toll passes which is cause chaos, problems and tension with the people. Why couldn't you have been like Delaware and just simply took our $4 cash? Why did you raise bridge prices with good heat? Good air conditioning and the best of everything. Even overspend on pens and paper. Unbelievable. Why the rest of us struggle everyday? It's a damn shame when you go to Walmart so you got to pick and choose what you can afford and you can't. I decided to put all my business into Delaware where it's a little bit cheaper when I travel to Virginia. I do as much spending down there as I can to stock up on things that are cheaper. These states are more than fair but Maryland you're going to run yourself into the ground. Maybe you just want the riches to live here and you want to get rid of the poor. God bless you. I hope you all choke and go down together

AnthonyApril 20 2025 at 8:02 am

How ironic that the services they plan to tax are already tax as income and profits. A tax on top of a taxed enterprise. This is insanity. How about coming to a realization that Maryland cannot solve world hunger and that stop being a magnet to outside free loaders.

TinaApril 20 2025 at 9:20 am

This is nothing new someone mentioned the rain tax, don't forget the flush tax either! Every time we flushed the damn toilet we were having to pay for that! O'Malley thought of that stupid 💩too!! I can only imagine what else these idiots will come up with for us to pay!!! This is another reason I'm planning on moving out of Maryland. So you can stick that in your damn pipe and smoke it Moron Moore!!!!

DPApril 20 2025 at 9:48 am

No Gail, Maryland does NOT Maryland need more tax revenue. They need to cut back on spending. Those who default to needing more revenue have gotten us into this mess. We should be going the other way. Like Florida and Texas that do not even have state income tax because they act responsibly with their citizen's money.

Leave a Reply

31af0bc 1  5728f5d21cd79

Gail Cole

Gail is a sales tax expert with a penchant for digging through the depths of BOE sites and discovering and reporting rate changes across the country.