Baltimore
Relevant Pending Legislation
Find legislation affecting local Mechanical Engineers.
Now that the General Assembly has Enacted
Its Tax Reform Package,
Are Engineering Services Safe from Sales Taxation in Maryland?
Stephen M. Cordi, Esq.
Ober|Kaler
On November 19, 2007, Governor Martin O’Malley signed into law a series of new laws increasing the rates of Maryland’s personal and corporate income taxes, sales taxes and tobacco taxes and extending the sales tax to “computer services.” The tax package will raise more than $1.4 billion, and the governor has been instructed by the General Assembly to find additional expenditure reductions of $550 million.
The governor did not propose to tax “engineering services” and neither house of the General Assembly passed legislation to do so. A proposal to tax “engineering services” was, however, included among a long list of other services proposed to be taxed in House Bill 11, introduced at the special session. House Bill 11 was identical to House Bill 448 from the 2007 regular session. Both bills were defeated by fierce opposition from affected businesses and professions, including the engineering profession.
Prior to the enactment of the tax package, one would have thought that the obvious complexities and adverse economic consequences of trying to subject engineering services to the sales tax would have been sufficient to insure their continued exemption. The General Assembly’s blind leap into the taxation of computer services, with not dissimilar complexities and adverse economic consequences, demonstrates that the profession needs to be on alert whenever the need for more state revenue arises.
The enactment of the tax package and attendant budget cuts should eliminate the immediate need for significant additional state revenues, suggesting that there will be no imperative to extend the sales tax to additional services in the near term. The only cloud on the horizon is that there will be a substantial effort to repeal the sales tax on computer services at the 2008 session, before the tax becomes effective on July 1st. The repeal of that tax will require that more than $200 million of additional revenues be found. The estimate of the General Assembly’s fiscal experts that the sales tax on engineering services would produce is $167 million per year at a 6% rate. While logic would dictate that the General Assembly not substitute one problematic tax on services for another, politics and logic have been known to diverge.
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