Maryland’s new computer services tax, which goes into effect July 1, threatens to cripple the state’s most innovative and successful high-tech industry just as the national economy takes a nose dive. It’s time for Gov. Martin O’Malley and the General Assembly to publicly admit they made a big mistake and repeal this ill-conceived tax — 6 percent on all sales revenues received by affected firms — before any irreversible damage is done.
The tax is the Maryland equivalent of Virginia’s widely reviled abusive-driver fees. Both were shoved down the public’s throat by politicians seeking to increase revenue flowing into state coffers. But instead of tightening their own belts, they came up with a new way to tax the productive, without considering the likely consequences. Just as a groundswell of opposition eventually forced the Virginia legislature to back down and repeal its unfair abusive-driver fees, growing opposition to the computer services tax is making a lot of folks in Annapolis think twice as well.
Opponents say significant progress has been made in the State House, and there are now enough votes to repeal the tax if it’s allowed to come to the floor for a vote. But the governor and the Democratic leadership are still balking.
If this tax is not repealed, Maryland information technology firms will be forced to raise prices or offer concessions to stay competitive. Some say they will move out of the state before absorbing a new 6 percent levy on everything they sell. They can easily escape by moving, most likely across the Potomac to Virginia. If this happens, every company and government agency in Maryland that relies on computers will pay a huge price for the legislature’s chronic inability to control its appetite for spending Marylanders’ tax dollars.
Computer service companies in Maryland employ 68,000 highly skilled professionals with a combined payroll of $2 billion annually. Had lawmakers bothered to hold public hearings before they passed this onerous tax, they would have learned that many states have already repealed similar versions because ofthe difficulties of figuring out how it should be applied. Furthermore, IT firms in Maryland already pay $600 million in taxes annually. That could be lost if firms move across the river to Virginia or elsewhere out of state.
State Comptroller Peter Franchot notes that improving the compliance rate on existing taxes would generate an estimated $200 million without killing the IT industry, the state’s golden goose, which has been adding jobs faster than Maryland’s vaunted biotech industry. The General Assembly should listen to him and repeal this bad tax before it’s too late.
