Vice Chair of Maryland House Panel Says Tech Tax Drove Decision to Move Business to Virginia

Del. Brian M. Crosby (D-St Mary’s) is vice chair of the House Economic Matters Committee — a panel that handles many business issues — as well as the owner of a small business that is a subcontractor on Defense IT contracts.

Until last week, that business was based in Maryland.

House Economic Matters Vice Chair Brian M. Crosby (D-St. Mary’s) said a tech tax will hurt businesses such as his that do federal contracting. Last week, on the same day a budget agreement that included the tax was announced, Crosby moved his business to Virginia. (Photo Bryan P. Sears/Maryland Matters)

But Crosby was already in the process of moving his business to Virginia last week when the governor and legislative leaders announced a budget deal that includes a 3% tax on IT, among other services, a tax that critics say poses an existential threat to businesses such as Crosby’s that contract with federal agencies.

“I listened to the announcement in the truck,” he said, describing the move that came on the same day as the budget announcement.

“I’ve raised these issues,” Crosby said. “I don’t know what to say. I think people are still convinced that you’re getting 50 cents of $1 or something.”

Instead, he said the tax would mean businesses such as his would lose money on every transaction.

“All I can say is you’re not taking 50 cents on $1,” Crosby said. “You’re taking $1.50 from $1.”

Crosby told his story Tuesday, minutes after his Democratic colleagues muscled through a two-bill spending plan on a preliminary vote. That plan includes the tax on data and IT services that is expected to raise nearly $500 million annually, part of the $1 billion in new revenues — and $2.5 billion in spending cuts — needed to close a $3 billion gap in the fiscal 2026 budget.

Crosby noted the irony of the situation. Gov. Wes Moore (D) and other legislators say they want to grow private industry and attract IT jobs to the area. One of the largest components of that industry are the numerous defense facilities in the state — Patuxent River, Fort Meade, Fort Detrick and others.

“On one hand, we’re saying we’re the IT-cyber corridor,” said Crosby. “On the other hand, the industry, which I’m a part of, is saying if you’re in the DoD [Department of Defense] segment, which is the state’s number one industry, you can’t make it on that (tax).

“The commercial companies, they can pass it off,” he said. “It’s not the same for the DoD guys, especially the smaller guys, it’s not as easy.”

Smaller companies such as Crosby’s often work as subcontractors to large prime contractors that are based out of state and, thus, not subject to the proposed tax, that is soon to head to the Senate. Subcontractors based in Maryland are not exempt.

Crosby’s five-year old company — he asked that it not be named — has been growing. He has a warehouse location in Georgia, where he plans to register his company while keeping a small presence in Maryland and a new office in Virginia Beach.

The new out-of-state company will deliver on its contracts as before to its larger prime, typically exempt, contractor partners that will deliver services to the federal facilities in Maryland.

“We know the numbers,” Crosby said when asked about how the change would affect companies that do the same type of contracting. “All I can say is that within a year, we’d file for bankruptcy.”

So Crosby acted fast. The House and Senate have an agreement on the tax. Delaying a move would mean needing more trucks, as materials needed for third-quarter projects are soon to arrive. There’s also the matter of bidding on future contracts.

Delaying a move was too risky, Crosby said.

Crosby may not be alone in his move should the tax pass as expected. The state Cybersecurity Association Inc. estimated that about 800 businesses similar to Crosby’s could be affected by a services tax. The Maryland Chamber of Commerce estimates more than 15,000 businesses, which employ an estimated 100,000 people, would be subject to the new tax.

During Tuesday’s floor debate in the House, Republicans tried to strip out the IT services tax — one of more than a dozen failed amendments offered during a sometimes testy four-hour debate.

Del. Todd Morgan (R-Calvert and St. Mary’s) stood feet away from Crosby as he described the choice faced by his Democratic colleague.

“Now I’m going to bring this home, ladies and gentlemen, to this room, to our colleagues, to one of my friends on the other side of the aisle,” Morgan said. “That individual is moving his business to Virginia.

“I’ll say this again, one of the colleagues in this room, who’s our friend on the other side of the aisle, is moving his business to Virginia as we speak,” he said. “So I just want that to sink in when we look at how big this picture is.”

Editor’s note: This story was originally published in Maryland Matters, which is, like the Virginia Mercury, part of States Newsroom.

by Bryan P. Sears, Virginia Mercury

Virginia Mercury is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Virginia Mercury maintains editorial independence. Contact Editor Samantha Willis for questions: info@virginiamercury.com.