Legislature Backs 'Tech Tax' Repeal, Hospital Takeover

By John Wagner and Philip Rucker
Washington Post Staff Writers
Sunday, April 6, 2008

The Maryland General Assembly sent bills to the governor last night that would repeal the state's new tax on computer services and authorize an independent takeover of the ailing Prince George's County hospital system.

Action on the measures, both of paramount concern to Washington area lawmakers, came as the legislature scrambled to finish work on hundreds of bills before tomorrow's scheduled adjournment of its 90-day session.

The Senate and House of Delegates approved a compromise $31.2 billion operating budget for the coming fiscal year, and the House took final action on a bill tightening regulations on shoreline development, a leading environmental priority this session for Gov. Martin O'Malley (D).

Yesterday's most rancorous debate focused on Maryland's computer services tax. The House voted 93 to 44 in favor of a bill that replaces $200 million a year in lost revenue from the tax with a three-year surcharge on the income of millionaires, as well as cuts to transportation projects and state agencies.

The surcharge has deeply divided Montgomery County lawmakers, some of whom argued yesterday that it was unfair to raise income tax rates again on residents who create jobs and give generously to charities. The 6.25 percent surcharge on income above $1 million would affect about 6,300 taxpayers, more than 40 percent of whom reside in Montgomery.

"You can only hit a cash cow so many times before they say, 'We're going to take our milk somewhere else,' " said Del. Charles E. Barkley (D-Montgomery).

His arguments were echoed by House Minority Whip Christopher B. Shank (R-Washington), who predicted that Virginia would become "a giant magnet across the river" for high-end earners.

House Majority Leader Kumar P. Barve (D-Montgomery) defended the repeal bill, modeled on an O'Malley plan, as "a balanced compromise" that would eliminate the computer services tax before it is scheduled to take effect July 1.

"You will be preserving the place of Maryland in the high-tech sweepstakes," Barve said. "I urge you to kill this thing, right here, right now."

The 6 percent "tech tax," which would apply to such services as custom software design and data processing, was enacted after little public debate during a special session last fall, called to fix the state's long-term finances. The tax arose in the Senate after O'Malley had proposed a wide-ranging revenue package. Passage of the tax generated an outcry from business and technology groups.

Senate President Thomas V. Mike Miller Jr. (D-Calvert) told reporters yesterday that the tax "felt like the right thing to do" at the time. "There's no sin in saying you're wiser one day than you were the day before," Miller said.

The Senate voted 30 to 17 in favor of the repeal bill Thursday. During committee debate and later on the floor yesterday, House leaders turned back several attempts to replace the surcharge on millionaires with additional budget cuts or transfers.

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