Juliana Buonanno feels like she’s on the verge of something “revolutionary.” As the CEO of the Baltimore software company TechSlice, she leads a six-person team developing medical technology, using tools like artificial intelligence to dramatically speed up the time it takes to turn ideas for medical monitoring devices into reality.

It’s the kind of innovation Gov. Wes Moore has praised and said should be a key part of Maryland’s economic growth revival.

But it’s also one that Buonanno and others say the state is at risk to lose under a proposal at the center of two public hearings Wednesday in Annapolis — a new business-to-business sales tax that some Democrats pitched to help resolve a mounting, roughly $3.3 billion budget deficit.

The tax would target businesses directly, charging 2.5% on certain professional services like accounting and marketing that are currently exempt from the state’s 6% sales tax. Software services would be among those added to the list, forcing companies like Buonanno’s to pay more for not just the payroll and human resources services it uses internally but also the products that she’s selling.

“This will crush us,” said Buonanno, who estimated the tax could have a roughly $60,000 to $80,000 impact on TechSlice.

She said it could force her team to consider moving the company out of the state, changing operations or increasing costs for clients that are already difficult to attract in a competitive market.

“It’s very short-sighted and doesn’t seem to be congruent with what Maryland state (government) has said it wants to champion and support,” said Buonanno, a 32-year-old single mother who said she wants to remain in Baltimore.

Legislators introduced the sales tax bill last week after stressing that they needed more options in the final stretch of budget negotiations.

Moore’s proposed combination of $2 billion in cuts and $1 billion in tax reform is likely not enough to fill the gaps. Proponents said expanding sales taxes in a targeted way could mean another $1 billion in new revenue. Senate President Bill Ferguson has said it’s under consideration, a signal that it could be part of a budget agreement with the House later this month.

But the idea has also been met with a thud among advocacy groups, which have spent the last two months on opposing sides of the tax debate in the State House.

Both business owners and progressive economic groups were lining up to oppose or withhold their support for the legislation at Wednesday’s hearings. Each side has described it as a “hidden” sales tax that businesses will ultimately pass on to consumers.

“Businesses would respond to this increase in costs in the way they respond to any increase in costs — by raising prices,” the Maryland Center on Economic Policy’s written testimony states.

The nonprofit policy center is a leader among the dozens of groups behind the Fair Share for Maryland Act, which calls for expanding taxes on corporate profits, raising personal income taxes for wealthy earners and providing more robust tax credits for lower-income families. Its organizers say a business-focused sales tax expansion could “significantly increase retail prices in a way that is opaque to the consumer,” including on necessities like groceries.

“We don’t think this is the best choice,” said Kali Schumitz, a MDCEP spokeswoman. “If they want to do something on business taxes, we’d much rather see them focus on business profits.”

Matt Gardner, a senior fellow at a Washington, D.C.-based think tank that has analyzed and supported Moore’s budget plan, said the tax is “very likely to be passed on to the consumer.”

It would also be a “shame,” he said, to implement the business services tax in place of other revenue options in the governor’s proposal. That includes implementing what’s known as combined reporting — a way of capturing additional tax revenue from businesses that operate in multiple states or countries — and eliminating the option for itemized deductions.

Republicans and some Democrats have bristled at the change to itemized deductions, pointing to a report indicating that some tax filers who make between $75,000 and $200,000 could see a tax increase because of it. Moore has emphasized that two-thirds of filers would see an average tax decrease of $173, while most new revenue would come from individuals making over $500,000.

“Nearly everyone in that income range is going to see an increase in taxes indirectly with the sales tax,” Gardner, of the Institute on Taxation and Economic Policy, said of the impact on the middle class tax brackets. “If the goal is to hold upper-middle-income families harmless, completely harmless, the business sales tax idea simply won’t do that.”

Moore has not said whether he would support the sales tax plan. Last week, he said he was looking into it while continuing to focus on his three objectives for the budget crisis: giving middle-class families “a bit of relief,” making it easier for businesses to grow and stay in Maryland, and investing in emerging areas of the economy.

“Whatever proposals come out of this, if it meets those criteria, that’s a proposal that I will work with [the legislature on] and I’m good with,” Moore said.

The Maryland Chamber of Commerce and other business-focused groups have said both the sales tax legislation and Moore’s original proposal fall short. They planned a news conference for Wednesday before the hearings to “deliver a clear message: Maryland’s business community has reached a breaking point.”

One small business in that category is Charles Chapman’s Pasadena-based Chesco Remodeling.

A U.S. Air Force veteran who retired in 1996 after serving in Iraq, Chapman said he overcame a drug addiction and is now about a decade into the home renovation and roofing business with five employees and eight to 10 subcontractors. He said he’s watched his profit margins get trimmed to a nearly unsustainable level in the last five years because of the pandemic and other factors like the collapse of the Francis Scott Key Bridge last year, which made the cost of getting to jobs in Baltimore County unaffordable.

“You throw another brick in there, of 2.5%, it’s truly going to sink the ship,” he said.

Chapman, 52, estimated he could pay $15,000 more annually and that raising his own prices would be tough because of his competition. He said it was deeply frustrating and confusing to be asked to pay more for services like payroll and accounting that he uses to pay taxes in the first place.

“You want to tax me for that?” Chapman said. “You want to tax me for hiring an accountant to do my taxes? That’s mind-blowing to me.”

Ferguson said Tuesday he understood the concerns from groups like the Chamber but that lawmakers were considering the proposal “very seriously.”

“We look forward to hearing their input at the hearing on Wednesday and incorporating and making changes to the legislation appropriately,” Ferguson said. “It’s a tough balance right now. We’ve said from the very beginning there are no good choices.”

Hannah Gaskill contributed to this report. Have a news tip? Contact Sam Janesch at sjanesch@baltsun.com, 443-790-1734 and on X as @samjanesch.