A plan to tax services used by some businesses will not have the support of Gov. Wes Moore (D) unless it also expands on the people who pay.
Moore told reporters Monday that his office has “been working very closely” with lawmakers. As a result he told reporters that two proposed taxes — a sales tax on services between businesses and another on sweetened beverages — would not pass.
The governor said the proposals did not measure up to his goals of making the state more business-friendly and lowering costs for residents who are feeling the pinch.
“That is why the broad business-to-business tax will not be in the final budget. So, a broad B2B tax will not happen in the state of Maryland,” Moore said.
The proposal — with identical bills in the House and Senate — would levy a sales tax on some services between businesses. It would raise an estimated $940 million in fiscal 2026 and a projected $1.4 billion in fiscal 2030 as currently drafted,with tech and consulting businesses paying the bulk of the tax.
But Moore’s comments did not fully explain the position he was announcing. Moore’s opposition to a “broad business-to-business tax” on services would become more acceptable if a sales tax was also assessed on services that some consumers would pay directly.
Moore also cited his priority to keep costs to Marylanders down as he announced that a proposed 2-cent per ounce tax on sugary drinks would not get his signature if it reached his desk.
“We’ve got to impact, we’ve got to bring down the costs of what people are seeing inside grocery stores and inside markets,” Moore said. “And that’s why the soda tax will not happen in the state of Maryland the soda tax will not be included in the final budget.”
The governor left immediately after making his statement. He did not take questions from reporters.
Following that appearance, administration officials spoke to reporters to provide additional details.
In those discussions, administration officials familiar with budget negotiations, repeated the governor’s objection to a tax solely on businesses.
Those same sources, who spoke on background with reporters, said Moore would consider a package that also included taxes on services direct to consumers as well as on businesses. Those sources acknowledged that any business-to-business sales tax would likely be passed on to consumers if the current bill became law.
The exact list of services or examples were not provided.
Those same officials left open the door for a change in the current proposed rate of 2.5% — lower than the 6% sales tax rate the state levies on goods. Officials said that while the number is “in the ballpark” they would not rule out a decrease or increase in the proposed rate.
Mary D. Kane, president and CEO of the Maryland Chamber of Commerce, initially expressed excitement over what she interpreted as Moore’s announcement to kill the business-to-business sales tax.
“I was thrilled to hear him say that,” Kane said. “I was also thrilled to hear him say that he’s going to look at each proposal through three lenses, including, ‘Does this make Maryland more competitive?’ This is what we’ve been trying to say all along.”
Kane said her excitement was tempered after learning business-to-business tax was not dead but might be expanded in some way.
“Taxing business services is not going to help any small or large business, even if they cherry-pick,” Kane said. “Picking different services and expanding it out to consumers — it’s tough enough as it is already with inflation and everything else going on.”
Adding services to consumers would not be a novel approach. A similar efforts have been proposed in the legislature including in 2024.
“It’s the same problem in different packaging,” Kane said.
Mike O’Halloran, state director for the National Federation of Independent Business applauded the announcement, but said vigilance is warranted.
“It’s good to hear that small businesses’ strong opposition to this tax has reached the governor,” O’Halloran said. “We’re equally thankful for his voice on this important matter. But the work is not done.
“Any tax that pushes Maryland further down the list of states to do business in shouldn’t be on the table in any form,” he said. “Small businesses also remain concerned with a proposed increase to their personal income taxes. Such a hike would adversely impact those owners who file as pass-through entities.”
It is not clear on how much the House, Senate and the governor actually agree.
House Appropriations Chair Ben Barnes (D-Prince George’s and Anne Arundel) did not comment on specific negotiations with Moore or the services sales tax.
“We have been working closely with the governor and the budget that house appropriations and ways and means will pass tomorrow will reflect that,” Barnes said in a statement Monday.
Leaders in the Senate were not immediately available for comment.
It’s the same problem in different packaging.
– Maryland Chamber of Commerce President and CEO Mary D. Kane
Republicans, who make up about a third of the House and Senate, said the announcement leaves unanswered questions about potential taxes in the proposed budget.
“I think the key issue to be determined is that the word ‘broad’ is in the eye of the beholder,” said House Minority Leader Del. Jason C. Buckel (R-Allegany). “Gov. Moore has come out and said, very clearly, I won’t support this broad business-to-business services tax. I would suggest that the bill as written would certainly qualify as a pretty broad business-to-business services tax. Where that goes, in terms of what they’re negotiating comes next, I don’t know.”
Democrats, who hold supermajorities in the House and Senate will ultimately control the final budget outcome.
“The Democrats appear to have considered a straight one-penny sales tax increase, but have taken that off the table, saying it’s too regressive, yet now they are willing to create a brand new tax that targets businesses and the middle class,” said Senate Minority Leader Stephen S. Hershey Jr. (R-Upper Shore).
Moore’s comments on the so-called sugary drink tax come as no surprise.
The proposed tax was projected to raise nearly $500 million in the first year. Nearly $190 million would go to expand the state’s free meal program to every public school and all qualifying private schools. Another $50 million would go toward the state’s child care subsidy program. The balance, about $210 million, was to be earmarked for the general fund budget.
The bill was expected to have a difficult road to passage.
“I think it’s important to note that the sugar tax polls very, very high. It has a lot of support by Marylanders, especially because all of it was dedicated to three main purposes,” said Del. Emily Shetty (D-Montgomery), the lead sponsor of the bill. “These are things that our communities support, and are excited about. That said, I know this is a tough year with tough decisions and hope that the conversation continues.”
Despite the polls, businesses came out in droves to oppose it.
Moore’s comments come as the legislature continues to hammer out a spending plan for fiscal 2026. Lawmakers are meeting in multiple voting sessions as they hurry to meet a key legislative milepost: Each chamber was racing to pass bills that could be sent to the other chamber by the end of the day Monday.
Bills that miss that deadline face a tougher time becoming law.
Additionally, the House and Senate continue to hammer out a budget. The House delayed finalizing its version of Moore’s spending plan in order to see if the federal government would shut down last week. The delay puts the House on track to debate the bill as early as the end of the week with the Senate getting the bill next week.
The delay, which was not unexpected, likely means the House and Senate will miss a deadline to complete the budget by the 83rd day of session. As a result, Moore is expected to issue a letter requiring the legislature to remain in session to work only on completing the budget. The House and Senate are expected to complete the budget by April 7 before the General Assembly adjourns.
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