House leaders introduced the bill last month as a way to pay for a major public education overhaul, including an expansion of prekindergarten, pay raises for teachers and programs to prepare more students for college and the workforce.
The tax would have been charged for services including haircuts, landscaping, legal or accounting services, and car repairs. It was expected to generate $2.9 billion a year by 2025 — a more than 50 percent increase over current sales tax revenue.
The bill also would have reduced the sales tax rate from 6 percent to 5 percent.
Gov. Larry Hogan (R) denounced the plan, calling it the largest single tax increase in the state’s history.
Hundreds of lawyers, accountants and other small-business owners descended on Annapolis on Monday to express opposition to the legislation.
Meanwhile, Change Annapolis, a political action committee that supports the governor’s initiatives, launched a petition and sent thousands of form letters to lawmakers urging them to kill the bill.
Maryland would have joined just a handful of states that broadly tax services: Hawaii, New Mexico, South Dakota, Washington and West Virginia. 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.
Luedtke had 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 thought to use more professional services.
While the legislation had support from top Democrats in the House, Senate Majority Leader Nancy J. King (D-Montgomery) indicated that the proposal was likely to die in the Senate.
On Wednesday, the House subcommittee advanced a package of other bills that will be used to help pay for the education overhaul.
Among them is an increase in the tax on tobacco and vaping products, a bill to close corporate tax loopholes by implementing combined reporting and a tax on digital goods.