Tech companies fight Md. sales tax

The Maryland information technology community is fighting hard against a new sales tax scheduled to go into effect July 1.

Although it is a state tax, any government contractor doing business with a federal agency in the state will feel its impact, said Julie Coons, chief executive officer of the Tech Council of Maryland. The council and the Maryland Chamber of Commerce have formed the Fight the Tech Tax coalition to push for a repeal of the tax. Other members include the IT Association of America and Computing Technology Industry Association.

The state legislature passed the sales tax in November; it requires companies to pay a 6 percent tax on the sale of computer services.

The law enacting the tax passed with no hearings and no opportunity for industry to argue against it, Coons said.

Even Maryland's tax collector, Comptroller Peter Franchot, doesn't think the tax is a good idea. His office released a statement saying he is requesting the tax be repealed because other states have tried similar approaches and found them difficult to define and enforce.

In the meantime, his office has formed a task force to develop regulations for implementing the tax in case it isn't repealed during the legislature's spring session, spokesperson Caron Brace said.

Enforcing the tax will be a bookkeeping nightmare, Coons said. The federal government is exempt from paying sales tax, but the law allows the state to require prime contractors to pay the tax on the portion of the work completed by subcontractors.

The subcontractors could be located anywhere in the United States as long as the customer is in Maryland, Coons said.

If the burden is on the prime contractor to collect the tax, it would discourage companies from using subcontractors in Maryland, which would hurt a lot of small and mid-size companies, she said.

Coons said she is "very guardedly optimistic" that the tax will be repealed.

However, Maryland, like many states, faces a budget shortfall, and the sales tax on computer services is expected to generate $200 million in revenue, she said.

Any proposal to repeal the tax would need a strategy for replacing the expected revenue, she said. Of the 17 or 18 proposals to amend or repeal the tax, only one has a revenue proposal attached to it, and that is for a gas tax, which is unlikely to pass, Coons said.

As part of its lobbying effort, the coalition launched a Web site ? FighttheTechTax.com ? and is encouraging businesses to contact the state legislature.

The group is planning a rally for March 12 outside the Maryland State House in Annapolis, the same day hearings will be held on the new regulations.

"We have 33 days left [in the spring session] ? a lot can happen," Coons said.

About the Author

Nick Wakeman is the editor-in-chief of Washington Technology. Follow him on Twitter: @nick_wakeman.

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