- The Washington Times - Sunday, March 23, 2008

ANNAPOLIS (AP) — While a tax on computer services in Maryland is locked in the cross hairs of repeal, lawmakers are still trying to decide how they could pull the trigger.

Although there are a variety of proposals for repeal and exemptions, Sen. Ulysses Currie said there doesn’t appear to be any agreement yet on how to replace the estimated $200 million that the tax would create if it goes into effect in July.

“There’s a sense that we will repeal, but it is still, ‘Where do we backfill the $200 million?’ I think that’s more the issue than the repeal,” said Mr. Currie, who chairs the Senate Budget and Taxation Committee.

So far, Senate President Thomas V. Mike Miller Jr. said leading alternatives include a tax on high-income earners that would expire after a couple of years. Another alternative would be to use some of the $400 million the General Assembly approved for transportation during November’s special session.

For much of the session, legislative leaders have said finding a substitute would be extremely difficult. As the days wear on, though, the repeal has gained increasing credibility. Asked if the tax appears to be on the way out, Mr. Miller, Southern Maryland Democrat, replied: “I think that’s correct.”

Mr. Currie said the task of finding a replacement is “very much up in the air,” with three or four alternatives under serious consideration. “I don’t think there’s a front-runner,” Mr. Currie said.

The tax has had opponents from the very beginning, when it was proposed during last fall’s special session as a substitute for other services that had been considered for a sales tax. The Senate settled on computer services in a scramble to make up for the money lost when lawmakers scuttled sales tax extensions to other businesses that rallied against them.

Gov. Martin O’Malley, who didn’t propose the tax but went along with it to reach consensus in the special session, said recently he would support a repeal. Mr. O’Malley, a Democrat, is in favor of a tax on high-income earners, in keeping with what he initially proposed in the special session to get a grip on the state’s structural budget deficit.

But the Senate didn’t go along with that in November, largely because of resistance from wealthy Montgomery County, where local leaders are speaking out against the idea again.

Sen. Jennie M. Forehand, Montgomery Democrat, has proposed replacing the tech tax with higher alcohol taxes. Mrs. Forehand said the tax on high-income earners could push them out of the state, much like what opponents of the tech tax fear would happen to computer services companies if that tax takes effect.

The computer services industry has focused on draft regulations the comptroller’s office released about a week ago. The tax would even affect companies outside of Maryland that do business in the state, because of a user fee associated with the tax. If the benefit of the service is received in Maryland, the tax would apply.

Michael Ryan, CEO of Annapolis-based South River Technologies, said the tax won’t affect much of his current business, which develops software to store computer files securely on the Internet. But, he said, the tax is influencing his decision about whether to expand in Maryland.

“We hear that same story from many of our fellow companies that are planning expansion,” Mr. Ryan said. “They’re wary about expanding into Maryland.”

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