Taxes on consulting?

I woke up this morning and nearly spit out my coffee as I read that the neighboring state of Maryland (I live in Virginia) is going to start charging sales tax on computer consulting – to the tune of 6%. That starts next year, January 1st 2008. This is a huge change and seems somewhat arbitrary since among the list of things considered were landscaping services, tanning salons, saunas, etc.

I’m not sure how the Maryland software consultants are going to cope with this. The easiest theoretically but probably hardest in real life is to just move to Virginia or Pennsylvania or Delaware, which don’t tax consulting services. They could also pass the cost on to their clients – which may be ok in the short term but I think will probably put them at a disadvantage vs other companies in neighboring states. They could eat the cost, but basically that’s a 6% pay cut. Or they could go and do something else, which is unfortunate. I’d say the first and last option are those unintended consequences that you always hear about. Side-effects in programming terms.

So what about everyone else in other states? Do you have to charge your clients sales tax if you’re doing consulting?

3 Replies to “Taxes on consulting?”

  1. Yeah, very short-sited, given how easy it is for a consulting service to just move…say to Delaware, where I live, and where the taxes are already lower than MD.

  2. Wow, I live i Maryland and do consulting sometimes. What constitutes “computer vs other kinds of consulting? Do you have a link to the story on this?

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