'Tech Tax' Repeal Likely to Clear Md. Senate Panel

The governor and legislative leaders have corralled enough votes to send a bill to the full Maryland Senate that would repeal the state's new tax on computer services and offset part of the lost revenue with a surcharge on the income of millionaires, a key lawmaker said yesterday.

The apparent breakthrough, with a week remaining in the legislative session, came amid intense lobbying by Gov. Martin O'Malley (D) and a flood of phone calls yesterday from representatives of the information technology industry to wavering members of the Senate Budget and Taxation Committee.

"I feel fairly certain a bill will come out of our committee," said Sen. Ulysses Currie (D-Prince George's), chairman of the panel, which could vote on the legislation as early as today.

The plan, modeled on a proposal by O'Malley, would also require cuts in transportation funding and state agencies to offset the more than $200 million a year that legislative analysts expect the computer services tax to generate.

Aides to O'Malley and lawmakers cautioned that the majority on the budget committee remains fragile and that a vote by the full Senate could be close. They also said alternative scenarios for a repeal are still being explored. If a repeal of the computer services tax clears the Senate, the House is widely expected to follow suit.

The 6 percent "tech tax," which is set to take effect July 1, would apply to a wide range of services, including custom software design and data processing. It was passed during a special session in the fall in which the Democrat-led General Assembly raised taxes by $1.4 billion a year in a bid to fix the state's long-term finances.

Momentum to repeal the computer services tax has grown considerably in recent weeks, but some Democrats have warned of the political consequences of embracing another tax increase, particularly given the sluggish economy.

"Opponents of this tax are not going to characterize it as a millionaires tax," said Sen. Richard S. Madaleno Jr. (D-Montgomery), a member of the budget committee. "It's going to be just another tax increase. . . . This is just more fodder for conservative talk radio."

The surcharge on millionaires suggested by O'Malley would directly affect an estimated 0.2 percent of income tax filers in the state, a group characterized as "the wealthiest of wealthy people" by Senate President Thomas V. Mike Miller Jr. (D-Calvert). He said he might support the tax if it is assessed on a temporary basis, ending after three years.

Several members of the budget panel have wrestled over whether to support another tax increase as part of the solution to repealing the computer services tax.

In an interview Friday, Sen. Robert A. Zirkin (D-Baltimore County), a budget committee member whom colleagues identified as a swing vote, said that he would strongly prefer to compensate for the $200 million in revenue loss through budget cuts and that there was no need to adopt a millionaires tax.

"I think that in a vacuum, this tax wouldn't be as unpopular as others might be," Zirkin said of the proposed surcharge. "But we're not operating in a vacuum. We're operating after a special session in which a number of other taxes have been raised."