2008 Computer Services Sales Tax

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COMMUNITY MEETING: Info and Insights on the Computer Services Sales Tax and Maryland Tax Reform Act of 2007
February 6, 2008
8 to 10 am

Notes and Insights from the event
Link to the bills
Story in The Capital - Business owners urged to unite in effort to give new tech tax the ax
Story in the Washington Times - Stung by tax, computer firms mobilize

Some 50-plus people turned out for the CRTC’s special event on the upcoming Computer Services Sales Tax, scheduled to take effect July 1, 2008. The Chesapeake Regional Tech Council is a non-lobbying organization that strives to present timely information and updates on issues that matter to member technology companies.

Five panelists joined us to provide insight to attending companies – most of them technology companies but some service-oriented companies – on the upcoming tax as it was passed in November, 2007; the steps still to take place to the existing tax; introduced legislation in the current session that would either repeal or amend the current tax; and on how companies and individuals can take an active role in the most effective way this session.

The panel was moderated by Herman Rosenthal, partner with Whiteford, Taylor & Preston and a long-time tax expert who is infinitely involved with tax related initiatives at the Maryland State Bar.

Panelists were:
Ron George, republican representative for District 30 in Anne Arundel County and sponsor of the two house bills;
Brian Levine, head of government relations for the Tech Council of Maryland, the organization that is co-head of the Fight the Tech Tax lobbying organization
Tom Loveland, President and CEO of Mind Over Machines and head of the Maryland Computer Services Association, recently formed to lobby against the tax
David Eisner, CEO of Dataprise, a company whose clients will be affected by the tax, as well as Dataprise itself.

Notes and Insights

Sales tax as it stands now is 6% on various computer services – facilities management, custom programming, system planning and design, disaster recovery, data processing, software installation, maintenance & repair with some exclusions on internet access, typing/data entry, training and installation. Full bill as enacted is here.

Currently there are 6 bills introduced in to the current session in the house and senate seeking to in some way amend or repeal the tax:
According to Herman Rosenthal, “there’s lots of terminology and ambiguity (around the current law) and as a consequence it raises a lot of questions.”

In the interim, people are scrambling to figure out what the tax law means, including the comptroller’s office. The definition of computer services isn’t very precise. For example, if a company develops a website, it’s not clear if that is part of computer services or another service like, say, marketing.

Also clouded in ambiguity is the question of location and how the tax applies when a service is provided in cyber space. So far the best guess is that the tax will apply on more of a destination basis – a service provided to a customer in Maryland versus a service provided by a Maryland provider out of state.

Right now if a company signs a contract before July 1, those services will still be taxed even if the contract does not provide for a tax increase: the company would have to pay it regardless (although there is an amended bill to address this issue currently in session).

SB41, HB 196 and HB 253 would repeal the bill in its entirety.

SB137 amends the law so that if you sign a contract in computer services prior to July 2008, the tax would not apply for the life of that contract (currently the law applies to all services, regardless of when a contract was signed).

HB281 would exempt services performed as part of a contract to the federal government.

HB 313 would exempt resale businesses.

The Comptroller’s office started meeting Feb. 6 to start writing the regulations, which could take a few weeks or could take longer. It’s already been noted that the Comptroller doesn’t like the law: and there’s a chance the exceptions could overshadow the regulations.

WHAT YOU CAN DO:

 Join a coalition, like Fight the Tech Tax (www.Fightthetechtax.com) or MDNeedsIT.org

 You can lobby, but, according to Delegate Ron George (R – District 31):
The best lobbying groups don’t give one inch. “You are not Bethlehem Steel,” he said. “It’s very easy for you to pick up and move elsewhere and (house and senate members) don’t realize that.”
 DON’T just contact one legislator or legislators in your district: Instead, contact every legislator on the ways and means committee (where the repeal and amended bills are now) and stop there. If the bills get through committee, then contact the rest of the legislators.

There are other computer services sales taxes in other states – but, they are either very small or not necessarily in full effect, according to Brian Levine, head of government relations for the Tech Council of Maryland, one of two organizations behind Fight the Tech Tax. Delaware, for instance, does have a sales tax on gross receipts of 0.3 percent. And other states taxes on computer services is lower (around 1 percent) and are not as broad and far-reaching.

You can learn about the tax and how to fight it at the Fight the Tech Tax website – www.fightthetechtax.com.

Insights from the front lines, according to Tom Loveland who is heading up the newly-created Maryland Computer Services Association: At first the administration refused to revisit or even discuss doing anything more to the tech tax and now, according to Loveland, they are willing to talk about it more internally. This is the one chance for a repeal of the tax. And while before tech stayed out of the limelight with legislative matters, Loveland says to “get used to” going to legislative breakfasts and dinners. The tech community has to be there to put a face to IT and technology in general.

This, according to George, is just the beginning: more issues are coming down the pike.

This is prime time for calling/ visiting legislators who have a say in potentially changing/ repealing the tax: currently planning is under way for a computer Services Day in early March at the state house.

Photos from the event

Panelists discuss the pending Computer Services Sales Tax and various repeal/ amended versions currently in the legislature. From left: Henry Rosenthal, Whiteford, Taylor & Preston; Ron George, Republican Maryland Senator; Brian Levine, Tech Council of Maryland.