- The Washington Times - Friday, March 14, 2008

DUNDALK, Md. (AP) — Gov. Martin O’Malley said yesterday he would support repealing a tax on computer services if an alternative is found, because he now thinks the tax could have repercussions on Maryland’s economy.

Instead, Mr. O’Malley said he supports a higher income tax on the very wealthy, which is closer to what he originally proposed during November’s special legislative session to tackle the state’s $1.7 billion structural deficit.

“I’ve never been a big fan of the computer tax, and the more we look at it and the more we look at the potential downsides of the computer tax, the more convinced I become that we should look for some alternative,” Mr. O’Malley said.

While Mr. O’Malley has left the door open for a possible repeal before, his comments yesterday reflected a much stronger interest in moving away from the tax.

In January, he told a disgruntled audience at the Tech Council of Maryland dinner that the tax became necessary to reach legislative consensus in a difficult mix of taxes and budget cuts. At the dinner, he said he’d prefer to “make it work and have it understood and not have an adverse impact on the tremendous potential that we have here.”

But that understanding hasn’t emerged for the better in the minds of business owners, who are threatening to flee the state.

Mr. O’Malley yesterday distanced himself from the tax altogether, emphasizing several times it was not his idea and that the tax came “out of left field.”

The governor said lawmakers “did not have the political will” to go along with his plan for a higher income tax rate on the wealthy. Mr. O’Malley, a Democrat, said lawmakers decided on the computer tax, “which had not been as fully vetted and considered as it might have been.”

Mr. O’Malley said a repeal depends on finding $200 million to replace the revenue.

The trouble has become even harder than it was during November’s special session, because of a recent state revenue write-down of $333 million due to a sliding economy.

One way that appears closest to Mr. O’Malley’s preference is a measure that would create new income tax rates of 6 percent for people with incomes between $750,000 and $1 million a year and a new rate of 6.5 percent for people who make more than $1 million.

“I really hope that they will look at the alternatives in terms of the revenues and particularly for people that make a million dollars or more,” Mr. O’Malley said. “I hope we take a second look at asking them to pay a slightly higher rate.”

But it’s not clear if there’s enough support, especially because Mr. O’Malley’s plan to do something like that got tossed out in November.

Meanwhile, business owners who felt blindsided by the tax have been peppering lawmakers in hearings and hallways. A tough army of lobbyists has been hired. A rally was held Wednesday outside the State House.

Lawmakers in Annapolis responded with relief to Mr. O’Malley’s announcement.

“It is an incredibly bad idea to put a roadblock in the way of information technology,” said Sen. Robert A. Zirkin, Baltimore County Democrat, who introduced a bill yesterday to undo the computer sales tax as long as voters approve slot machine gambling in a November referendum.

Mr. Zirkin told reporters “the tide is turning” on the computer sales tax and that its enactment would have cost Maryland jobs.

“That’s the economy of the future,” Mr. Zirkin said, though he doubted lawmakers would go along with Mr. O’Malley’s plan to raise income taxes to make up the difference.

“There is not the sentiment for any new taxes,” said Mr. Zirkin, who is pushing instead for cuts to transportation projects.

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

The 6 percent tax does not take effect until July. It would be on the books for five years.

Associated Press writer Kristen Wyatt contributed to this report.

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