Legislators rush to delete computer sales tax

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ANNAPOLIS (AP) — The extension of the sales tax to computer services has become a $200 million point of contention in the State House, with Republicans and Democrats trying to build enough support to repeal it before the tax takes effect in July.

But without a substitute to fill such a gaping budget hole, many say it will be tough to get rid of the tax.

"It taxes the very leading edge of our modern economy," said Delegate Murray D. Levy, Charles Democrat, who opposed the tax. "But just to say we're going to do away with it and not do anything, that's the kind of thinking that got us into trouble in the first place."

The extension of the sales tax to new services was one of the more volatile issues in November in the three-week special legislative session, called to battle a $1.7 billion budget deficit. When proposals to tax real estate management, tanning and massage parlors and health clubs emerged early in the session, public outcry blasted the proposals out of Annapolis.

Stuck and hungry for revenue, the Senate decided to try computer services, landscaping and video arcade games — giving little notice to people who would be affected and avoiding the noisy demonstrations brought by real estate agents and fitness club owners.

Although landscaping and video games eventually fell out of the bill, computer services remained an attractive alternative that could make up for all the others that were dropped. Supporters said businesses that could afford the computer services also could afford the tax.

But resistance was always present.

Sen. Jennie M. Forehand, Montgomery Democrat, plans to propose repealing it and replacing it with higher alcohol taxes and other taxes. She said she agreed with Republican Party complaints that the computer services industry had no chance to lodge opposition in a hearing before it was signed into law.

Comptroller Peter V.R. Franchot, another Montgomery Democrat, also opposes the tax, saying it will be hard to implement. He noted that Florida and Pennsylvania enacted similar taxes, then repealed them.

The computer services that will be affected under the tax include support services for computer systems or data processing facilities, custom computer programming, consulting services regarding computer systems design, and computer disaster recovery services.

Sen. David R. Brinkley, Frederick Republican, is pushing legislation for a repeal. He's also considering modifications to the tax, in case lawmakers don't get rid of it outright.

"There's the will of a lot of members to do something," said Mr. Brinkley, the Senate minority leader.

But Gov. Martin O'Malley, a Democrat, opposes a repeal unless lawmakers come up with a better idea to generate $200 million a year. Senate President Thomas V. Mike Miller Jr., Southern Maryland Democrat, has said he will fight efforts to overturn it, and House Speaker Michael E. Busch, Anne Arundel Democrat, has pointed to the extreme difficulty of finding an alternative.

Delegate Norman H. Conway, Wicomico Democrat, who chairs the House Appropriations Committee, said a repeal would require either $200 million more in other taxes or $200 million more in cuts — but neither option is popular, especially after budget-cutting and tax-increasing anguish of the special session.

"I think everybody has to understand, it's a part of the revenue package that was put in place," Mr. Conway said.

• Associated Press writer Kristen Wyatt contributed to this report.