House legislative leaders introduced the bill last month as a way to pay for a major overhaul of public education, including an expansion of prekindergarten, teacher pay increases, and programs to make more students ready for college and careers.
The tax, which would take effect Jan. 1, would raise $887 million in fiscal 2021 and about $2.9 billion in fiscal 2025, according to legislative analysts. To help mitigate its impact on people’s wallets, the sales tax rate would be reduced from 6 percent to 5 percent, even as the range of purchases that are taxed would expand significantly.
Residents would pay a 5 percent tax on services ranging from legal work to haircuts to lawn mowing to accounting to carwashes.
House Majority Leader Eric G. Luedtke, the bill’s sponsor, said the proposal was designed, in part, to make the state’s tax code less regressive, shifting more of the burden to wealthier residents, who are believed to use more professional services.
Luedtke (D-Montgomery) said that residents increasingly consume professional services as well as goods and that the state tax code should reflect that trend.
“If we’re going to continue using the sales tax as a source of revenue for our schools and our roads and our police and fire departments and all the other services we provide to the citizens of Maryland, we’re going to need to grapple with this issue of taxing services at some point,” Luedtke said.
The tax would apply to almost all services, including many that are staples of life for low- to middle-income earners as well as the wealthy.
The bill carves out exceptions for services related to education; health care; social services, including most day care; and services provided by religious organizations, civic groups, or a business, professional labor or political association. Luedtke told his colleagues that he would be open to exempting additional services to make the legislation more palatable.
Currently five states broadly tax services: Hawaii, New Mexico, South Dakota, Washington and West Virginia.
Numerous other states, including Pennsylvania and Michigan, have tried to impose such a tax but have been mostly unsuccessful, according to the National Conference of State Legislatures. Some others, including Connecticut and North Carolina, have taken incremental steps to tax the purchase of services.
On Monday, the Maryland House Ways and Means Committee also considered a bill that would extend the sales tax to a smaller number of businesses. The bill, sponsored by Del. Lorig Charkoudian (D-Montgomery), would apply a 6 percent tax on “luxury services,” including fur cleaning and storage, interior designing, and jewelry and boat repair. The bill would raise about $72 million by 2025.
Hogan is airing attack ads that urge residents to contact lawmakers and tell them to oppose the plan. The ads are paid for by a super PAC the governor helped create to sway public opinion.
The ads have aired online and will be broadcast on cable and network television. They say that “the Maryland legislature wants to destroy our economy” and that the new tax would be “crushing.”
In the Senate, where Democratic leaders are considering paying for the education overhaul by increasing the cigarette tax, allowing sports betting, and taxing digital downloads and digital ads, there has been a wait-and-see attitude on Luedtke’s proposal.
Sen. Guy J. Guzzone (D-Howard), the chairman of the Senate Budget and Taxation Committee, has said he wants to wait for the House bill to move through that chamber before taking a position.
Guzzone did not return a call for comment Monday. A spokesman for Senate President Bill Ferguson (D-Baltimore City) said he was unavailable for comment.
But Senate Majority Leader Nancy J. King (D-Montgomery) said she did not think there was an appetite for the bill among her colleagues.
“I don’t believe there would be support for something like that, to get something like that passed,” she said. “I would have a hard time supporting it myself.”
King said her office received 5,000 emails in three hours Friday about the bill.
Asked whether any were in support of the measure, she said: “You’re not going to see someone saying, ‘Please raise my taxes.’ People are worried in general about the economy right now anyway. It just makes people really uneasy.”