A 6 percent sales tax on some computer services is projected to bring $214 million in revenue to state coffers in fiscal 2009. But affected businesses cast doubt on that projection, which was created with data dating back as much as 10 years, and said they would have to greatly expand their sales to keep their current profit margins intact.
“It has not been broken down,” said Julie Coons, CEO of the Tech Council of Maryland. “Out of $200 million, where do they expect $10 million to come from, $7 million, $5 million? What portion drives the tax revenue?”
The $214 million projection was generated by the General Assembly?s Department of Legislative Services, which based it on the U.S. Census Bureau?s 1997 and 2002 Economic Census reports and U.S. Department of Labor statistics.
The projection estimates revenue growth of 3 percent per year, a 6 percent decline in taxable base resulting from lost business, and was adjusted to not include sales made to governmental or nonprofit entities.
The data, including 1997 data that were collected before the dot-com bust earlier this decade, doesn?t reflect the current information technology market, said Anne Lipman, who owns ALTEK Information Technology in Frederick.
Also, to keep their current revenues intact, Lipman said businesses would have to greatly increase their sales.
The margin for most computer services falls between 5 and 15 percent and averages about 7 percent, Coons said.
“It means literally I would have to relocate or close my doors,” said Lipman, who began her company as a solo effort in the summer of 2004 and has grown to 16 full-time employees and $19 million in yearly revenue. “There is no passing this on to my customer, it will have to be eaten by the business. There are so many competitors that I would lose business because I can?t compete.”
Joseph Shapiro, spokesman for the office of state Comptroller Peter Franchot, said that office has just begun reviewing the legislation, determining who it would apply to and how it would be collected. At the end of a process he said would be more intense than that used by the Department of Legislative Services, the Comptroller?s Office will determine its own projected revenues from the tax.
“The comptroller has expressed concerns about the number, if the $200 million is a reasonable outcome,” Shapiro said. “We?re going to promulgate the regulations. We have internal staff [on it], and we?re reaching out to different groups … and we?d like to hear from industry representatives.”
