How, exactly, it will be implemented and enforced was still unsettled Friday as most Democrats backed the plan while Republicans and impacted businesses continued to raise concerns that it will harm Maryland’s economy.
Some businesses — of the roughly 15,300 that at least one organization has said would be impacted directly — have said their only option will be to leave the state. The cost of running a competitive information technology or software publishing business when 3% of all their work is being taxed on top of the regular corporate rate would be too much to handle, they say.
“Small businesses will bear a disproportionate burden, and all Maryland businesses may be incentivized to relocate to more tax-friendly states,” the Alliance for Digital Innovation and the Cybersecurity Coalition wrote in a letter to Gov. Wes Moore and legislative leaders Friday.
Republicans, who opposed all forms of tax increases this year, have echoed those fears that a mass exodus will be the most likely result of the tax.
They’ve also taken aim at the uncertainty of it. Sen. J.B. Jennings, a Harford County Republican, said during a budget debate this week that confusion was rampant because of the nature of IT services and where they’re geographically provided.
“I’v gotten calls from people asking what does that mean? Where is it delivered? What if they’re working remote but they’re giving work, the work they’re doing, is on a server that’s based in Virginia but the company’s based in Maryland? Who’s going to pay that? That is the concern that’s happening,” Jennings said.
While some businesses could flee or restructure so they’re technically registered out of state, architects of the new law say growing pains were factored in.
For example, about $482 million that’s planned to come in from the tax in its first year is expected to grow over time.
If it doesn’t hit that number at first, state officials will be forced to make adjustments in the form of cuts or finding new revenue — which they do regularly when they receive semi-annual tax revenue updates and then respond to them.
“I suspect that with the changing nature of technology, we’ll continue to see iterations of how this gets applied,” Senate President Bill Ferguson told reporters this week. “It’s why, in the first year of its revenue projection, there’s a significantly lower number ––– because we expect that there’s going to be a bit of a delay in the implementation.”
That implementation, like for any tax, will fall to Comptroller Brooke Lierman’s office.
As the state’s elected tax collector, Lierman and her team will evaluate the final version of the proposal and then issue regulations and guidance “as soon as we can” after Monday’s final day of the annual session and the enactment of the tax on July 1, said Robyne McCullough, a spokeswoman for the comptroller.
“Given the ongoing conversations about the budget and the potential for changes to the proposal, we are not able to go into detail about the implementation of proposed taxes until they are finalized,” McCullough said in a statement Friday. “At a high level, without getting into the specifics of the proposals still being negotiated and voted on by the Maryland General Assembly, the Office of the Comptroller will continue to collect sales and use tax in the same manner as we do right now.”
Businesses currently report and remit the state’s 6% sales and use tax through the online Maryland Tax Connect portal, she said.
While the tax does not specifically target businesses, lawmakers anticipate most of the taxes to come from services used by businesses. The list of those types of businesses was narrowed late Friday when a final budget agreement exempted certain types of technology from the 3% tax — licensing and intellectual property, quantum computing and cloud computing.
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 very complicated” though, Guzzone stressed, and the comptroller will be figuring out “how exactly that implementation occurs.”
“The comptroller obviously is going to be enforcing this and working with businesses,” Guzzone said. “There’s going to be discussion.”
Del. Ben Barnes, a Prince George’s County Democrat who is Guzzone’s counterpart in the House, said he was pleased with the overall roughly $1.6 billion tax package.
Asked by The Baltimore Sun if he was confident in the revenue estimate for the technology tax, the largest piece of that package, Barnes did not directly answer. He said what “we are super confident about” is that the final budget turns a massive structural deficit into a positive structural balance.
Republican opponents aren’t so sure. Joining business groups who have vocally opposed the tax, they’ve said it will do the opposite of what it’s trying to do — push businesses away and ultimately hurt economic and revenue growth in the state.
“The very industry that Gov. Moore is trying to promote in Maryland, this General Assembly is going to pass a tax on those businesses,” Senate Minority Leader Steve Hershey said on the Senate floor this week while talking about the technology tax. “I don’t think that’s good business sense. I don’t think Pennsylvania’s doing that, Virginia’s doing that. We know we’re not seeing these types of tax increases in North Carolina, South Carolina. They’re getting all the jobs and seeing double-digit economic growth. Maryland, we’re flat-lined.”
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