- The Washington Times - Thursday, March 13, 2008

ANNAPOLIS (AP) —The Maryland Senate shot down a proposal to make room in the state’s budget to repeal a highly criticized tax on computer services yesterday, but rising heat from the industry has lawmakers considering ways to soften the blow.

As opponents rallied against the so-called “Tech Tax,” Sen. David R. Brinkley, Frederick Republican, proposed an amendment to the Senate’s budget bill to make up for an estimated $214 million that the tax is estimated to generate.

The amendment would have paved the way to repeal the tax by drawing on $114 million in the state’s fund balance and requiring Gov. Martin O’Malley to cut $100 million more from state agencies.

“This was a bad idea from the start,” Mr. Brinkley said. “The question now is what do we do….How do we get ourselves out of this quagmire?”

The computer-services industry is infuriated by the tax, which was ushered through the General Assembly quickly during the November special session — after extensions of the sales tax to other services were nixed when targeted industries rallied noisily in Annapolis.

Mr. Brinkley found support with several Democrats, including Sen. Jennie M. Forehand, Montgomery Democrat, who held up tax legislation in the waning hours of the special session because she didn’t like the computer-tax proposal.

Mrs. Forehand said lawmakers will have no idea what the fiscal impact to the state will be if the computer services industry folds up and “decides to go across the river into Virginia or somewhere else” to flee the tax.

But other Democrats, even some who favor a repeal, said Mr. Brinkley’s idea wasn’t the way to go.

Sen. Robert J. Garagiola, Montgomery Democrat, pointed out that the tax, which is set to last for five years beginning in July, would raise more than $1 billion, making Mr. Brinkley’s proposal “a credit-card solution to this.”

“I think we can find a solution to repealing this, but … the math doesn’t add up,” Mr. Garagiola said.

Senate President Thomas V. Mike Miller Jr., Southern Maryland Democrat, said the tax likely will be changed so that it doesn’t affect existing contracts or government contracts. Mr. Miller said he talked with Mr. O’Malley about the changes Tuesday night.

“I think he’s amenable” to the changes, Mr. Miller said.

The debate in the Senate came on a day when lawmakers held hearings on proposed repeals to the tax.

Don Fry, president of the Greater Baltimore Committee and a tax opponent, said now is not the time to burden businesses with a broad new tax.

“This tax would place Maryland’s IT services sector at a severe competitive disadvantage, not only in the Mid-Atlantic region, but in the U.S. as a whole,” Mr. Fry said.

But Sen. Richard S. Madaleno Jr., Montgomery Democrat, said last week’s $333 million drop in estimated state revenues means that the state needs to have more cash on hand and that the amendment would leave “our fund balance in a very precarious situation.”

“We know we’re at the edge of a potential further economic downturn,” Mr. Madaleno said. “To pass this amendment — and take this money out of our fund balance — would leave us with very little cushion, should there be further economic downturns during this year.”

Mr. Brinkley’s amendment failed after 26 senators voted against it and 19 supported it.

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