Computer Services Firms Want Sales Tax Repealed

In many cases, when Maryland companies purchase computer services from out-of-state vendors, they will be required to report the taxes they owe to Maryland officials, a practice consistent with other out-of-state businesses purchases, Deputy Comptroller Linda L. Tanton said.

Tanton said several issues remain to be worked out, including some related to long-term computer service contracts that have already been initiated. She said her office will probably wait until the legislative session ends in April to issue final regulations, given the renewed debate on the issue.

Nine states now tax computer services, according to legislative analysts. Some others, including Pennsylvania and Florida, attempted to impose the levy but later repealed it after difficulties collecting it. In Connecticut, litigation has arisen over what kind of computer services are subject to the tax.

Opponents of the tax in Maryland point to several potential problems, including hindering the ability of computer services firms to bid on federal contracts. The federal government will be exempt from the tax. But prime contractors in Maryland who use subcontractors will be subject to the tax on that work, which could drive up the overall cost of the contract.

At the insistence of House leaders, lawmakers agreed to place a five-year "sunset" on the computer services tax, meaning that the provision will expire in 2013 if the General Assembly does not vote to extend it.

Barve, the House majority leader, said he is confident that several bills will be introduced to terminate the tax before its collection starts -- and that the issue will get a full airing.

"There will be hearings on this, and I expect they will be well attended," he said.