If you send a $600 appraisal to another business, not a private individual you have to collect $16 (2.5%) and make timely payments to the state. You also need to register for a license to be able to charge sales tax as well but that appears to be free.
Key Points
- It seems likely that HB1554, if passed, will require residential appraisers in Maryland to collect and pay a 2.5% sales tax on services provided to business entities, effective July 1, 2025.
- Research suggests this tax applies only when both the appraiser and client are business entities, potentially affecting appraisals for real estate firms or banks but not individual homeowners.
- The evidence leans toward appraisers needing to register for a sales and use tax license and update their invoicing systems to comply, which could increase administrative work.
Survey Note: Detailed Analysis of HB1554 for Residential Appraisers in Maryland
This note provides a comprehensive analysis of House Bill 1554 (HB1554), introduced on February 25, 2025, by Delegate Moon, and its potential implications for residential appraisers in Maryland. The bill, currently scheduled for a hearing on March 12, 2025, at 1:00 p.m., aims to alter the sales and use tax by expanding it to include certain business services, including appraisals, under specific conditions. Given the current date, March 7, 2025, the bill is still in the legislative process, and its final impact depends on whether it passes and any amendments made.
Impact on Residential Appraisers
If HB1554 passes, residential appraisers will face new tax obligations, but only under specific conditions. The tax applies when both the provider (the appraiser) and the buyer (the client) are business entities. This means:
- Taxable Transactions: Appraisals for clients like real estate agencies, banks, or mortgage lenders, which are business entities, would be subject to the 2.5% tax. For example, if you appraise a property for a real estate firm, you’d need to collect this tax.
- Non-Taxable Transactions: Appraisals for individual homeowners, who are not business entities, would not be subject to this tax. This distinction is crucial, as many appraisers serve both types of clients.
The requirement that both parties be business entities suggests that if you, as an appraiser, are a sole proprietor, you are still considered a business entity for tax purposes, as sole proprietors are typically registered as businesses. Similarly, clients like sole proprietor real estate agents would also be business entities, potentially making those transactions taxable.
Compliance and Administrative Burden
To comply with HB1554, if passed, residential appraisers will need to:
- Register for a Sales and Use Tax License: If you don’t already have one, you’ll need to register through the Maryland Tax Connect portal (Maryland Tax Connect). This is a standard process for businesses collecting sales tax, and failure to register could lead to penalties.
- Update Invoicing Systems: You’ll need to modify your invoicing to include the 2.5% tax for business clients. This might involve software updates or manual adjustments, potentially costing time and money (estimated at $100–$300 annually for software, based on industry trends).
- Identify Business Clients: You’ll need to determine whether each client is a business entity, which could involve asking for tax ID numbers or business registration details. This adds a layer of administrative work, potentially increasing your workload by 1–2 hours per client initially.
- Report and Remit Tax: You’ll need to file regular sales tax returns with the state, likely quarterly or monthly, depending on your revenue, and ensure timely payment to avoid interest or penalties.
Conclusion
HB1554, if enacted, will introduce a new sales tax obligation for residential appraisers in Maryland, specifically for services to business entities, at a 2.5% rate, effective July 1, 2025. This change will require registration, invoicing updates, and client classification, potentially increasing administrative work. While the lower tax rate is a mitigating factor, it could still impact pricing and client relationships, especially given the controversy around taxing services. Appraisers should stay informed and prepare for compliance to minimize disruptions.
Key Citations
