Tech tax resistance builds

The Baltimore Sun

CAMBRIDGE -- Backlash from the technology industry could make it "almost impossible" to keep Maryland's new computer services tax on the books, a key lawmaker said yesterday, suggesting that despite November's special legislative session, the fight over the state budget is far from over.

Speaking before local officials at the Maryland Association of Counties winter conference, state Sen. Ulysses E. Currie, the Prince George's County Democrat who chairs the Budget and Taxation Committee, said he and other legislative leaders would fight efforts to repeal the tax.

But he warned that the state could be forced to trim an additional $200 million from the budget because of weakening support for the new levy - one of the most controversial parts of the budget package passed in November.

"I think it's going to be very difficult" to retain, Currie said. "Especially in Montgomery County, where you have a lot of high-tech firms, a lot of computer firms - that's where you feel the pressure points."

The legislature is set to reconvene in Annapolis on Wednesday, and members of the computer industry, as well as business advocacy groups, are preparing a push to repeal the expansion of Maryland's sales tax to Web design, computer repair and other services.

They argue that the tax, estimated to produce $200 million in revenue, will be difficult to enforce and will put Maryland companies at a competitive disadvantage to firms in neighboring states.

State Sen. Robert J. Garagiola, a Montgomery County Democrat, said he plans to introduce a bill that would essentially replace the computer services tax with a per-gallon gasoline tax increase of 6 cents to 8 cents, spread out over the next two years.

"The chorus on repealing this has just begun and it's going to get louder and louder," Garagiola said, though he acknowledged that increasing the gas tax at a time of $100-a-barrel oil prices would be a "tough hurdle to overcome."

Maryland Chamber of Commerce spokesman William Burns said a "Fight the Tech Tax" coalition of businesses and local pro-business associations is being assembled to mount a "full court press" to overturn the tax.

In addition to Garagiola's legislation, state Sen. David R. Brinkley, the minority leader from Frederick County, said he will introduce legislation that would repeal the service tax without proposing an alternative revenue source.

Other likely bills will seek to create exemptions in the tax to help some companies - such as federal contractors or those with contracts created before November - avoid the service levy, Burns said.

Yesterday, Senate President Thomas V. Mike Miller downplayed the notion that a repeal of the tax was imminent, saying that Currie was merely sending a warning message to local government officials.

"If we can't make up the $200 million, then we're going to have to cut, and that cut will be felt by the counties," Miller said.

Miller declined to predict whether the computer services tax would survive but said he would fight to keep it on the books.

House Speaker Michael E. Busch, an Anne Arundel County Democrat, said it would be difficult to find a politically palatable alternative source for the revenue the tax is expected to generate.

Gov. Martin O'Malley and legislators already have to find $250 million in savings in order to balance the coming budget, Busch said.

"People always talk about repealing revenue sources," he said. "But if people want to find a way to reduce the computer tax, they're either going to have to make $200 million more in cuts" or in new taxes.

O'Malley said this week that he didn't support a repeal of the computer tax. Like Busch, he cautioned that the $200 million would have to come from another source that might be equally unpopular.

David Taub, co-founder of a Baltimore-based 43-employee digital marketing firm with clients such as Black & Decker and Legg Mason, said the tax raises concerns. He said he was worried that it would reduce his company's profit margins and make Maryland companies less competitive for out-of-state clients.

"We're very loyal to the state," Taub said. "But we do have a small office in Virginia, so there could be a possibility of shifting resources."

It is not clear whether out-of-state clients of Maryland computer companies would have to pay the tax under the new levy, which goes into effect in July.

A spokeswoman for Comptroller Peter Franchot said he has organized a task force to study how it should be applied.

In the meantime, Franchot, a Montgomery County Democrat, hopes the measure will be repealed, said Caron Brace, the spokeswoman, because he is concerned its implementation will be onerous.

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