$2.9 Billion Sales Tax Expansion Killed As House Revenue Package Moves Forward

House Majority Leader Eric G. Luedtke (D-Montgomery) speaks to reporters about a proposal to expand the state's sales tax to cover most services, while reducing the overall sales tax rate. Photo by Danielle E. Gaines.

A bill that would have dramatically expanded Maryland’s sales tax to raise more than $2.9 billion for education reform efforts has been voted down by a key House subcommittee.

House Majority Leader Eric G. Luedtke (D-Montgomery) tweeted Wednesday night that the Revenue Subcommittee of the Ways and Means Committee, which he chairs, voted unanimously to kill House Bill 1628, which he sponsored.

The bill would have lowered the state’s sales tax rate from 6% to 5%, but expanded it to apply to most services not currently taxed.

The measure attracted emphatic opposition at a hearing earlier this week.

Given the “tremendous concern from the public and from small business owners,” Luedtke said the subcommittee was opting instead to move a smaller package of revenue bills. It includes measures that would implement combined corporate reporting in the state, increase the state’s tobacco tax and apply it to vaping products, and tax certain digital goods similar to tangible goods.

Combined, the measures could generate more than $350 million annually by 2025, according to preliminary fiscal estimates based on the bills as they were originally drafted, though amendments have been proposed.

“Taken together, these bills get us much of the way to fully funding the Blueprint, though future legislators and Governors will have more work to do to fund the final few years of the plan,” Luedtke tweeted. “And they make our tax system more fair and help many Maryland small businesses.”

Some of the measures were included in a package of revenue options pushed by progressive Democrats that focused on closing corporate loopholes, ending policies that benefit special interests and establishing a more equitable income tax system in the state.

The measure expected to generate the largest amount of revenue is the implementation of combined reporting and a corporate tax throwback rule in Maryland. Those efforts were sponsored by Del. Mary Lehman (D-Prince George’s) and Del. Vaughn Stewart (D-Montgomery).

Combined corporate reporting has been regularly debated ― and opposed by leading business groups ― in the General Assembly since 2003. But Maryland is now among a minority of states that have not implemented the change.

The full House Ways and Means Committee is expected to consider the revenue package on Friday and the bills could be taken up in the House chamber early next week.

Also on Wednesday, the Ways and Means Committee voted 14-8 in favor of the Blueprint for Maryland’s Future education reform bill. The House Appropriations Committee also passed the measure, sending it to the House floor.

“While the revenue package is important, the bill it supports is more important still,” Luedtke tweeted. “It’s a moral stain that our state doesn’t give every kid a great education. Providing it is also the key to our economic future.”

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Editor’s Note: This story was updated to correct the vote tally in the House Ways and Means Committee on the Blueprint bill. 

Danielle E. Gaines
Danielle Gaines most recently worked for Bethesda Beat covering Montgomery County. Previously, she spent six years at The Frederick News-Post as the paper’s principal government and politics reporter for half that time, covering courts and legal affairs before that. She also reported for the now-defunct The Gazette of Politics and Business in Maryland and previously worked as a county government and education reporter at the Merced Sun-Star in California’s Central Valley.