Computer tax draws opposition

Friday, Dec. 21, 2007

But now that the tax has become reality they want to do something about it. Especially since technology services are part of the region’s livelihood. It’s a place where hundreds of small businesses rely on computer services to grow and advance, and a large defense industry relies heavily on technology-based firms to complete projects, local business leaders say.

The chamber and CCTC recently banded together and joined a coalition developed between the Maryland State Chamber of Commerce, the Maryland Technology Council and various county chambers to try to get the tax repealed.

‘‘Small technology companies are one of the backbones of our economy. Everybody understands that,” said Carlos Montague, chairman of the CCTC and managing partner of Port Tobacco Consulting in La Plata.

‘‘Everyone was taken by surprise and taken aback. It was unusual for the legislators to do,” said Dan Barufaldi, executive director of the Charles County Chamber of Commerce. ‘‘Everybody began to realize what the ramifications were for all businesses” because every company uses computers and hires firms to help build Web sites and other management programs, he said. ‘‘They realized that this was going to have an adverse effect on their costs. This was not a well-thought out action. I think Charles County will be heavily affected by this.”

‘‘I think it’s really important that legislators throughout the state hear from business people in their districts, despite the size of the jurisdiction. We want to make sure business owners are doing whatever they can to get the word out. This tax to computer services is unacceptable,” said William Burns, spokesperson for the Maryland Chamber of Commerce.

The 6 percent tax would apply to computer facilities management and operations; custom programming; computer system planning and design that integrate computer hardware, software, and communication; computer technologies; disaster recovery; data processing, storage and recovery; and hardware or software installation, maintenance, and repair.

While Montague’s company offers an array of services, the computer services division ‘‘is part of our bottom line,” he said. ‘‘It’s important we keep growth in that area or we won’t be able to support it.”

‘‘We’ve heard from Maryland-based businesses that their [profit] margins are less than 6 percent. This puts them out of business,” Burns said. ‘‘This isn’t the message we want to send. This is a sector of our economy that continues to grow. It’s foolish to target them with a tax like this. I’ve heard some legislators say whenever you tax something you get less of it.”

The CCTC is asking people to sign an online petition that will instantly generate electronic letters to legislators requesting for the tax to be repealed, Montague said, who’s also on the board of directors of the county’s chamber of commerce.

‘‘Trying to attract [knowledge and technology- based firms] here [will be] very difficult because we’re going to be very competitive with our adjacent states. I think [legislators] were looking for money for the structural deficit, and they got a lot of heat with the real estate taxes, and they grabbed something really quickly without thinking about the real effect that it would have,” Barufaldi said.

Because the tax was not originally in the special session’s plan, those affected could not voice their concerns like real estate lobbyists did, who worked to stop enactment of a new real estate processing tax, Barufaldi said.

The tax could have detrimental effects on Maryland’s, and particularly Charles County’s economy, because the clients of local technology and computer services firms could seek companies in Virginia, Pennsylvania, Delaware and Washington D.C., to get the job done. This is not to mention how many existing businesses will choose not to relocate to the area as a result and if defense contractors, government clients and universities will decide to pull contracts out of the state, Barufaldi said.

‘‘There’s clearly a concern in the federal contracting and subcontracting community,” Burns said.

Full details on how the tax will affect these industries will become available once the comptroller’s office sets specific regulations for the tax after the first of the year, he said.

‘‘A lot them [computer services] can be done remotely. The guy can get into your computer from 50 miles away or 5 miles away. In those conditions, why would someone pay taxes here?” he said.

Pennsylvania and Florida are a couple of states which implemented broad laws that include a computer service tax which was later repealed, he said.

‘‘You can certainly see the potential for administrative problems that a tax on this kind of services creates” for a multi-state corporation, Burns said. ‘‘How do you determine what percentage of the overall cost gets Maryland sales tax applied to it?”

After some research the council found that everyone in the Southern Maryland delegation was either completely opposed or didn’t vote that day, Montague said. But for additional support the chamber sent a mass e-mail to all of its members asking them to send letters to the delegation, asking them to support a repeal, Barufaldi said. So far the number of people who’ve signed the petition has been encouraging, Montague said.

‘‘Whether it [the repeal] happens or not is a whole different story. Small business owners will have to be flexible and work with their clients and see how best they can work through the problem,” Montague said, especially since firms might have to increase rates as the tax settles in to keep profits stable.

‘‘We sometimes contract with companies as well and it could affect our decision on who we contract with,” said Mark Czajka, president of the CCTC and director of new technology for Automated Graphic Systems in White Plains.

The tax, which would go into effect in July 2008, is planned to continue for five years, when it will be reevaluated again.

‘‘Some people think that it could be too late by then. The damage could already have been done,” Czajka said.

The $200 million expected to be generated from the tax could be offset by the total number of business dollars lost in the state as a result of the tax, he added.

‘‘[Southern Maryland’s] a growth area. Do you really want to impact that? I don’t see anything positive coming out of it,” Czajka said.

Email Kayleigh Kulp at kkulp@somdnews.com.