Frequently Asked Questions About Computer Services Sales Tax - REPEALED!

What was TCM’s Position on the 6% Computer Services Sales Tax?

The Tech Council of Maryland (TCM) strongly opposed the six percent sales tax on computer services that passed during the 2007 special session of the Maryland General Assembly and made a full repeal of this tax its top policy priority for the 2008 session.  TCM is pleased to report that our fight was successful.  On April 8, Governor Martin O’Malley signed SB 46, which fully repeals the tech tax.  The tax, which was to go into effect on July 1, 2008, is nowt off the books for good.

What did TCM do to fight the Tech Tax?

TCM, along with the Maryland Chamber of Commerce, partnered with local tech councils, local chambers and Maryland businesses in a coalition to fight for the repeal of the computer services sales tax. The Coalition coalesced a large group of anti-tech tax advocates, created a website, www.fightthetechtax.com, organized rallies and kept tax opponents informed of the latest information on repeal efforts. TCM also worked day and night in Annapolis. We met with legislators, testified at bill hearings, worked with repeal advocates and activated TCM’s membership to help with the fight. Though things looked bleak at first, TCM and the Coalition really started to make a difference. By the time the Coalition held its second rally on March 12, the tide was really starting to turn. The very next day, Governor O’Malley announced his opposition to tech tax. After that, momentum started to build for the tech tax’s ultimate repeal. The repeal of this tax saves Maryland’s business community, especially those in technology, over $1 billion in taxes over the next five years!

Where did this tax come from?

During the 2007 special session, the Maryland General Assembly passed SB 2 – Tax Reform Act of 2007. This bill would have extended Maryland’s 6% sales tax to computer services including computer facilities management and operation, custom computer programming, computer system planning and design that integrate computer hardware, software and communication technologies, computer disaster recovery and data processing, storage and recovery as well as hardware or software installation or maintenance and repair. This tax was to be effective July 1, 2008 and sunset June 30, 2013.

How many bills in the Maryland General Assembly called for changes to the tax?

There were a total of 20 bills introduced that sought to either repeal the computer services sales tax or provide for exemptions to the tax. Some called for exemptions for things such as government contracts, preexisting contracts, research and development and other items. SB 46, sponsored by Senator Jennie Forehand, ultimately became the repeal vehicle late in the 90 day session.

Where did elected officials stand on this tax?

Although this tax was passed by the Senate and House during the Special Session and was signed into law by the Governor, most elected officials, including Comptroller Peter Franchot, opposed to the idea of a tech tax. However, while there were plenty of repeal bills introduced, ideas on how to backfill lost revenue stemming from a repeal were few and far between. However, momentum for a repeal slowly built over time thanks to grassroots and the dogged determination of TCM and legislative leaders like Senator Rob Garagiola (District 15). Finally, on March 13, one day after the Tech Tax Coalition’s second anti-tech tax rally, Governor O’Malley announced that he supported a repeal of the tech tax. After this, momentum continued to build among Senate and House leadership to work together to find a common solution for repeal.

Would the tech tax have had an impact on Maryland’s economy?

The tech tax would have had long-term, detrimental effects on Maryland’s technology economy and economic development opportunities. This tax sent a strong anti-business message to Maryland companies and to companies that were contemplating moving to Maryland. This tax would have impacted all businesses. In particular, the tax would have discouraged entrepreneurs from starting up new IT services companies in Maryland. It would have made Maryland companies less competitive and was already causing companies to consider leaving Maryland. The IT business is highly mobile. It is such a competitive sector that most businesses operate on very low profit margins, sometimes less than 6%. Neighboring states leapt into action and were actively recruiting Maryland companies to move their businesses out of Maryland. Taxing computer services would have made Maryland's business climate and tax structure uncompetitive with other states, including Virginia, Delaware and Pennsylvania, and would have harmed Maryland’s economic development goals to create and maintain a high-tech knowledge economy.