Computer Service Tax Proposed for Maryland

Do you want to try to
collect taxes from this guy?

Reference: "Computer Services Firms Want Sales Tax Repealed: Affected Businesses Say They Were Caught Off-Guard by Eleventh-Hour Levy" by John Wagner, The Washington Post, December 9, 2007.

The special session of Maryland's General Assembly last month decided to raise about $200 million a year by imposing a six percent sales tax on Maryland consumers of computer services, including custom programming, data processing and hardware maintenance. The tax is set to take effect July 1.

The tax would apply to all, including the individual who calls on Geek Corps to fix his computer and to the business that purchases services here for its intranet; out-of-state providers would also be expected to tax Maryland customers and pay the proceeds to the Maryland government. The tax is to be levied on individuals and companies in Maryland when they pay for the specified computer services.

The tax proposal "is now drawing the ire of business groups, technology associations and computer executives caught flat-footed by its passage three weeks ago.....'Our members are understandably shocked,' said Julie Coons, chief executive of the Tech Council of Maryland, part of a coalition pushing for the tax's repeal when the General Assembly session starts Jan. 9. 'This is essentially taxing Maryland firms for trying to stay competitive in this regional, national and increasingly global economy.'"

The Maryland government has still to publish details on how the tax is to be collected. How will existing contracts for services be treated? Which consumers of services provided by companies located in other states will be required to inform the state government about their purchases?

Nine states now tax computer services, according to legislative analysts. Some others, including Pennsylvania and Florida, attempted to impose the levy but later repealed it after difficulties collecting it. In Connecticut, litigation has arisen over what kind of computer services are subject to the tax.......

Opponents of the tax in Maryland point to several potential problems, including hindering the ability of computer services firms to bid on federal contracts. The federal government will be exempt from the tax. But prime contractors in Maryland who use subcontractors will be subject to the tax on that work, which could drive up the overall cost of the contract.

Comment: This seems like a very bad tax. A lot of computer services are now provided over the telephone and/or the Internet. Many are provided from India or other nations to businesses and individuals in Maryland. Those who obey the law will be at a six percent price disadvantage as compared with those who don't pay the tax.

This is a law that will lead businesses and people to buy their computer services from scoff-laws. It will be hard to implement for the state government. And it will militate against the development of high tech businesses which should be the future of this state. JAD