Maryland’s Proposed Business-to-Business Tax: A Direct Hit on Small Businesses

Maryland lawmakers are considering a 2.5% sales tax on business-to-business (B2B) services, which could significantly impact small businesses across the state. The proposed tax, outlined in House Bill 1554 and Senate Bill 1045, would apply to essential professional services such as accounting, consulting, IT, advertising, and equipment repair—all of which small businesses rely on to stay compliant and competitive.

Why Small Businesses Will Bear the Biggest Burden

Unlike large corporations with in-house teams, small businesses depend on outside professionals for financial management, payroll, and compliance. This new tax would make these services more expensive, forcing small business owners to:

• Absorb the costs, cutting into already tight margins.
• Raise prices for consumers, making it harder to stay competitive.
• Reduce reliance on critical services, increasing financial and legal risks.

This tax discourages small business growth and makes Maryland a less attractive place to do business, especially compared to neighboring states like Virginia and Delaware that don’t impose such a tax.

A Compliance Nightmare for Small Business Owners

Beyond the financial burden, this tax creates complex regulatory challenges. Questions arise, such as:

• If a Maryland CPA prepares taxes for a business with locations in multiple states, how is the tax applied?
• If a consultant works remotely, splitting time between multiple locations, where does the tax apply?
• Will small businesses have to track and report professional service taxes on top of existing compliance burdens?

This tax could result in confusion, disputes, and increased administrative costs, making it even harder for small businesses to operate smoothly.

A Hidden Tax on Consumers

The proposal could lead to tax pyramiding, where taxes accumulate at different stages of production, ultimately driving up the cost of goods and services for consumers.

Other States Have Tried and Failed

Maryland isn’t the first state to consider taxing professional services—but history shows it doesn’t work.

• Florida (1987) repealed its service tax within six months due to overwhelming business opposition.
• Michigan (2007) repealed a similar tax within one day after immediate backlash.

Maryland’s Competitiveness is at Risk

With today’s remote work capabilities, businesses can easily hire professionals in other states. If Maryland imposes this tax, it risks losing revenue, jobs, and business growth.

What Small Business Owners Can Do

If this tax concerns you, now is the time to take action:

• Call or email your legislators—explain how this tax would impact your business.
• Join business organizations advocating against the tax.
• Stay informed—follow updates and attend hearings.

Maryland’s small businesses are the backbone of the economy. Let’s make sure policymakers understand the real impact before it’s too late. Read more about these proposed bills here.