Senate Balks at Plan to Allow Repeal of Computer Services Tax

In Tight Budget Year, Legislators Argue Over How to Make Up Projected $200 Million in Revenue

The Maryland Senate rejected a budget amendment yesterday that supporters said would have made it possible to repeal the state's new tax on computer services.

The 26 to 19 defeat of the Republican-sponsored measure did not end efforts to abolish the controversial tax this session. But it underscored a lack of consensus over how to make up lost revenue if the tax is repealed.

The tax, which passed with little debate during a special session in November, is projected to yield about $200 million a year for the state.

The amendment, introduced by Sen. David R. Brinkley (R-Frederick), called for tapping $114 million in unallocated funds and directing Gov. Martin O'Malley (D) to cut $100 million from the coming year's budget to offset the effect of repealing the tax.

"Many in this room have stated how bad this tax is," Brinkley told his colleagues during debate on the Senate floor. "This is the best way to go about repealing it."

Brinkley's proposal received support from all 14 Republicans in the chamber, as well as five Democrats, including two from Montgomery County, Sens. Rona E. Kramer and Jennie M. Forehand.

But the amendment was panned even by some advocates of repealing the tax, who argued that the proposal would not compensate for lost revenue beyond the coming fiscal year. Under current law, the computer services tax is to be imposed for five years.

"This does not solve the problem," said Sen. Robert J. Garagiola (D-Montgomery), the lead sponsor of one of several bills on the issue that were the subject of hearings yesterday in Senate and House committees.

During the hearings, technology company representatives argued that the tax would significantly harm a flourishing industry and prompt some companies to leave Maryland.

The 6 percent tax, which is scheduled to take effect July 1, would be assessed on a wide range of services, including custom software design, data processing and visits from repair squads.

Others argued during Senate floor debate that tapping unallocated funds could leave the state in a precarious financial position. If the economy remains sluggish, tax revenue might fall short of projections next year.

Lawmakers are in the process of cutting more than $300 million from O'Malley's proposed $15 billion general fund budget. Sen. Ulysses Currie (D-Prince George's) said an additional $100 million in cuts would probably force O'Malley to cut higher education funding, which would lead to significant tuition increases in the fall.