Computer Services Firms Want Sales Tax Repealed

Proposals to tax health clubs, landscaping services and auto repairs were among those put forward during the session by either O'Malley or legislative committees. Several were dropped from consideration after outcries from affected industries and their lobbyists.

Only computer services, which carried the largest price tag by far, was included in the final package.

"We looked at services, and we were looking at revenues, and the combination of the two is how it came to be in the bill. There was not some scientific analysis that went into it," said Sen. Ulysses Currie (D-Prince George's), chairman of the Budget and Taxation Committee, which added the computer services tax to the package in the middle of the 21-day session without holding a hearing on the measure, citing time pressure.

The "lunch bunch" consists of senior members of Currie's committee, who often meet privately before presenting proposals to other members of the panel. None of those interviewed would publicly identify the senator who suggested the computer services tax, which was included in a long menu of possibilities distributed by legislative aides.

Sen. Richard S. Madaleno Jr. (D-Montgomery), a freshman on the budget committee, said he did not know exactly how the tax came about. "You'd have to talk to someone who was in the backroom," he said.

Executives from computer services companies said the episode has been a wake-up call to the ways of Annapolis, and several are now talking about trying to hire some of the state's more powerful lobbyists before the session starts next month.

"To me, it's shocking that something this dramatic got done so fast," said Tom Loveland, chief executive of Mind Over Machines, an Owings Mills-based company that operates an office in Bethesda focused on federal contracts. "I was just horrified and realized our industry needed a stronger voice in Annapolis. I am not willing to just sit by and wait for my chamber of commerce-type groups to take care of this for me."

For a time, it appeared that the computer services tax had disappeared.

After the tax's initial passage in the Senate, House budget writers chose not to include it in that chamber's version of a revenue package. But voicing some reluctance, House leaders agreed to the tax during negotiations on the final full day of the special session, once it became apparent that the budget shortfall would not be closed without it.

The Maryland Chamber of Commerce has announced that repealing the tax will be among its top priorities in the upcoming legislative session, in part because of the tariff's broad impact on the business community.

Ronald W. Wineholt, the chamber's vice president of government affairs, said the organization is particularly concerned about small businesses, which are more likely to contract with other companies for computer needs.

The tax will be levied on individuals and companies in Maryland when they pay for certain computer services. And the tax will apply regardless of whether the provider is in Maryland, according to both legislative analysts and officials from the Comptroller's Office, who have started developing regulations that will provide more details about the application of the tax and the logistics of its collection.