Signing the Charles County Technology Council’s (CCTC) online anti-tax petition doesn’t seem as dramatic as boarding merchant ships in the dead of night to throw their cargo of tea overboard.  However, the state’s new Tech Tax has Maryland small business owners just as upset as the citizens of Boston in December 1773. 

“As residents and business owners in the state of Maryland, we are not at all pleased with the vote in the recent special session to levy a ‘service tax’ on the Computer Service industry,” the petition states.

The petition’s 259 signers, to date, want the tax repealed before it decimates the State’s technology and small business sectors. 

“Taxing computer services stifles the growth of Maryland's knowledge-led economy, inhibits new tech business growth, and encourages the flight of tech businesses to neighboring states,” said Julie Coons, the Technology Council of Maryland’s Chief Executive Officer.

“This tax is the worst thing that came out of the session,” said CCTC President Mark Czajka summing up comments he’s heard around the tech sector.  “A lot of our members are small businesses and that’s where the impact will be.”  With this petition, the CCTC leads the rally round the Maryland Chamber of Commerce’s anti-tax battle cry.

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Who’s Doing the Damage?

According to recent media reports, Senate President Thomas V. Mike Miller Jr. (D-Calvert) sees the new 6% sales tax on computer services as a way to reap $200 million in budget income from business spending instead of the paychecks of blue-collar employees. 

Miller is quoted saying, "I'm not of a mood to repeal the computer tax."  Miller’s mood, however, will decimate the State’s approximately 443,000 small businesses.  These businesses employ 47 percent of all Maryland workers.

According to CCTC Vice Chair and small business owner, Amy Eastburn-Gallo businesses like hers are frequently engaged on an emergency basis and the companies with the most competitive rates get the calls for service.  Adding sales tax to computer service rates put Maryland based computer services at a distinct disadvantage in an already fiercely competitive landscape with companies from the District, Virginia, and Delaware. 

Although the General Assembly designed the tax to expire after 5 years, requiring renewal to continue, Czajka thinks by then the damage will have been done. In 2006, Maryland’s Department of Labor, Licensing and Regulation reported that computer related occupations occupied five of the top ten fastest growing employment opportunities in the State.  Czajka and Eastburn-Gallo say that small business owners affected by the tax will either go out of business or move their businesses out of state. 

According to the Tech Council of Maryland, only Connecticut has a tax on computer services.  But, even its 1% has been under legal scrutiny since it began.  Florida and Pennsylvania found that taxing computer services was unwieldy, confusing and difficult to administer.  Both states repealed these taxes; Florida, only three months after it became effective.

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How Did This Happen?

Maryland Comptroller Peter Franchot, in a Nov 8 letter to Speaker of the House Michael E. Busch, said the tax was added to the Senate bill in a “highly ir­regular manner”.  In addition to concerns about administering the vaguely-worded tax, Franchot expressed himself “frustrated by the seemingly random and arbitrary manner in which these industries have been targeted for taxation …”

“It’s not fair and balanced,” said Eastburn-Gallo, referring to the comments Governor Martin O’Malley made on the budget process during his appearance at Charles County’s last Economic Summit.  

Franchot’s letter also expressed dismay that the tax was adopted, “without the courtesy of advance notice, the benefit of meaningful public input or sufficient understanding of its effects”.

The tax on computer services was an eleventh-hour addition to a gigantic tax bill (SB 3 – Tax Reform Act of 2007) designed to fix the State’s immediate FY2009 deficit and correct ongoing structural deficits.  It was adopted during the General Assembly’s special session last autumn.  In the months leading up to the session, a variety of taxes were proposed; giving effected sectors time to provide legislators with relevant information and opinions on the proposals. 

“It’s the way this came down,” said Eastburn-Gallo.  “We didn’t have the opportunity to lobby for months like the real estate people did."

“In the current budget crunch, Maryland legislators decided that the tech industry should take it on the chin.  Maryland tech was provided no public opportunity to be heard on this outrageous measure,” said Coons.

“We don’t have a firm understanding of all the areas it’s going to affect,” Czajka told The Bay Net.  “It happened so fast, they didn’t allow people to come in and lobby this and explain why it’s not a good idea.”

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How Did Your Delegates Vote?

On the other end of the spectrum from Senate President Miller sits Delegate Jeannie Haddaway (R-Dist. 37) who introduced an amendment to remove the language expanding the sales tax to computer services from the bill.  Her amendment was defeated 46 to 74.  

Charles County’s Delegates Peter Murphy (D-Dist. 28) and Sally Jameson (D-Dist. 28) did not vote. 

Delegates Murray Levy (D-Dist. 28) and John Wood (D-Dist. 29) voted down the amendment.   All three Calvert County delegates and two St. Mary’s County delegates also voted down the amendment. 

The lone Southern Maryland voice against sales tax on computer services was St. Mary’s Delegate Anthony O'Donnell (R-Dist. 29).

Czajka and Eastburn-Gallo will send the petition to the State Legislature before the end of the next legislative session beginning Wednesday, Jan. 9.  Czajka wants people to be able to sign the petition through the end of January. 

You can read the exact wording of the bill here.  The petition can be found here.

Maryland Department of Labor, Licensing and Regulation

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