The quickest proposed addition of a new levy on specific technological services represents the biggest part of the plan. complex tax reform plan that Maryland legislators were set to provide their final approval for on Saturday and implement within fewer than three months — however, crucial details regarding its functioning remain unresolved.
Exactly how it would be implemented and enforced remained unclear on Friday, with most Democrats supporting the proposal. Meanwhile, Republicans and affected businesses were voicing their worries, asserting that it could have adverse effects on Maryland’s economy.
Certain companies—among approximately 15,300 noted by at least one group—have stated would be impacted directly — have stated that their sole choice will be to exit the state. They argue that operating a competitive information technology or software publishing company with an additional 3% tax on top of the standard corporate rate would be unsustainable for them.
"Smaller enterprises could face an unfair economic strain, and every business in Maryland might be motivated to move to states with more favorable taxation policies," stated the Alliance for Digital Innovation along with the Cybersecurity Coalition in a letter addressed to Governor Wes Moore and legislative heads on Friday.
Republicans, who were against any form of tax hikes this year, have voiced similar concerns that a significant number of people might leave as a consequence of these new taxes.
They have also targeted the ambiguity surrounding it. Senator J.B. Jennings, a Republican from Harford County, mentioned during a recent budget discussion that there was widespread confusion due to the characteristics of IT services and their geographical provision.
"I've received calls from individuals who want to know what this means and where it will be delivered. They're worried about scenarios where employees are working remotely, yet their tasks involve using servers located in Virginia even though the company is headquartered in Maryland. The main question is: Who should bear these costs? This uncertainty is causing concerns," Jennings explained.
Although certain companies might relocate or reorganize to officially register elsewhere, the creators of the new legislation assert that these initial challenges were taken into consideration.
For instance, the anticipated revenue of approximately $482 million from the tax during its initial year is projected to increase gradually over time.
If this target isn't met initially, government officials will have to implement changes such as budget reductions or seeking additional funds—actions they frequently undertake with regular semi-annual updates on tax revenues and their subsequent responses.
I believe that as technology evolves, we'll keep seeing different applications of this," Senate President Bill Ferguson said to reporters earlier this week. "That's why in the initial year of revenue forecasts, the numbers are considerably lower — since we anticipate some delays in putting these changes into action.
The execution of this plan, similar to any new tax, will be managed by Comptroller Brooke Lierman’s office.
As Maryland's appointed tax collector, Lierman along with her staff will assess the finalized version of the proposal. Following Monday’s conclusion of the legislative session—the last day of their yearly gathering—they aim to release regulations and guidelines "as quickly as possible." This move precedes the implementation of the new tax on July 1st. According to Robyne McCullough, who serves as a spokesperson for the comptroller, this timeline ensures timely action.
McCullough stated in a Friday release, "Considering the continuous discussions regarding the budget and the possible alterations to the proposal, we cannot provide specific details on how the suggested taxes would be implemented until they become final." He added, "In general terms, without delving into the particulars of the negotiations currently underway within the Maryland General Assembly, our office will keep collecting sales and use taxes just as we have been doing up to this point."
She mentioned that businesses presently submit both the state’s 6% sales and use taxes via the online Maryland Tax Connect system.
Although this tax isn’t aimed directly at companies, legislators expect much of the burden will fall on them through various service charges. Late last Friday, as part of a finalized budget deal, specific tech sectors were excluded from the proposed 3% levy; these include areas such as licensing and intellectual property rights, quantum computing, and cloud computing services.
Sen. Guy Guzzone, a Howard County Democrat who leads the Senate budget negotiations, said after the agreement was reached that he believes contractors and other businesses doing important cybersecurity work will “largely” be exempt.
It's quite complex," Guzzone emphasized, and the comptroller will be determining "exactly how this implementation unfolds.
Guzzone stated, "The comptroller will clearly enforce this policy and collaborate with businesses. There will also be discussions."
Rep. Ben Barnes, a Democrat from Prince George’s County who serves as Guzzone’s equivalent in the House, expressed his satisfaction with the approximately $1.6 billion tax package as a whole.
When asked by The Baltimore Sun whether he was certain about the revenue forecast for the technology tax—a key component of the plan—Barnes avoided a direct response. Instead, he stated that they were "very confident" that the concluding budget would transform a significant structural deficit into a favorable structural surplus.
Republican adversaries aren't convinced. Aligning with business organizations that have loudly contested the tax, they argue it will achieve the contrary effect — driving companies away and potentially harming economic and revenue expansion within the state.
“Governor Moore aims to boost the tech sector in Maryland, but the General Assembly plans to impose taxes on these companies,” stated Senate Minority Leader Steve Hershey during his speech on the Senate floor this week concerning the proposed technology tax. "This doesn't seem like sound business strategy to me. I don’t believe Pennsylvania or Virginia are implementing such measures. Meanwhile, states like North Carolina and South Carolina aren’t experiencing similar hikes in taxation. These states are attracting numerous job opportunities and witnessing over ten percent economic expansion. In contrast, Maryland remains stagnant."
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