Budget leaders favor taxes on computer firms

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ANNAPOLIS — Senate budget leaders said yesterday they will not repeal the new taxes imposed on computer services, despite an all-out protest by business leaders during the 2008 General Assembly session.

The lawmakers said they will need the additional revenue to help close the budget shortfall.

"We don't have a replacement for $200 million," said Sen. Ulysses Currie, Prince George's Democrat and chairman of the Budget and Taxation Committee.

Opponents of the tax — including Republicans, Comptroller Peter Franchot and other Democrats — said the increase was slipped into a broad tax bill during the special Assembly session in November.

Gov. Martin O'Malley, a Democrat, and leaders of the Democrat-controlled Assembly have balked at a repeal.

State budget specialists already plan to cut $200 million to $300 million from Mr. O'Malley's $31.6 billion budget for fiscal 2009.

Lawmakers are set to hear proposals to repeal the tax March 12.

Repealing the tax would either increase budget cuts to $500 million or result in new taxes, both unpopular alternatives among lawmakers.

Hundreds of computer repairmen and merchants who would bear the additional 6 percent tax came to the State House yesterday to press lawmakers for a repeal.

They and other opponents of the tax say they are undaunted by the strong opposition from state's budget leaders.

Among the groups opposed are the Tech Council of Maryland, the Maryland Chamber of Commerce and the Maryland Computer Services Association, which hired Mr. O'Malley's former communications director, Steve Kearney.

"This is a tax that hurts every sector of Maryland's economy," said chamber spokesman Will Burns. "We think we're building momentum to change people's minds on this."

Business leaders who met with Senate President Thomas V. Mike Miller Jr. said he might consider "tweaking" the tax but did not seem open to a repeal.

David E. Eisner, president and chief executive of Dataprise in Rockville, said Mr. Miller, Southern Maryland Democrat, understands that information technology — much like the wheel, the cotton gin and the combustion engine before — is one of the few innovations that drives an economy.

"What we're doing in the state is we're an economic enabler," Mr. Eisner said.

Mr. Eisner said he provides computer services to at least 300 small businesses in Maryland. "When you're staring down the barrel of a recession do you want to fine the businesses that make you money?" he asked.

Mr. Eisner suggests a compromise for lawmakers — an exemption to the tax for businesses that have offices in Maryland and employ at least two Marylanders.

He said he borrowed the idea from the District, which has levied a computer-services tax since 1992. The D.C. Council approved an exemption for "qualified high tech companies" in 2000, essentially allowing a business with office space and at least two employees in the District to avoid the tax.

"It would be encouraging to all of the out-of-state businesses," he said. "I think it's a reasonable alternative."