Amid growing momentum for a repeal of Maryland's new computer services tax, Comptroller Peter Franchot released a broad interpretation of the levy yesterday, stoking fears that it will force businesses to leave the state.
Under the draft rules, computer services would be subject to the 6 percent sales tax even if the service provider is located outside of Maryland. That will make enforcing the law difficult and could encourage business customers to relocate computer-related operations, said Franchot, an outspoken opponent of the tax.
"Companies will be lined up in droves to leave the state if the tax is not repealed," he said.
Julie Coons, chief executive officer of the Tech Council of Maryland, called the comptroller's interpretation of the tax "the broadest possible regulation they could have enacted and the broadest in the United States. ... It certainly does not allay any fears."
Among the computer services subject to the tax starting July 1:
Data processing and data storage.
Web services, including Web-site hosting.
Database development.
Hardware and software installation, maintenance and repair.
Telecommunications, banking transactions, computer training and Internet access services are excluded.
The tax will not apply to prime contractors on government contracts, but subcontractors will be taxed, officials said. Government subcontractors form a major chunk of Maryland's high-tech economy.
While the technology tax has been described as largely a "business-to-business" levy, Franchot's office made clear yesterday that people who purchase services for home computers are also subject to the tax "regardless of their business or nonbusiness use."
The regulations came out a day after Gov. Martin O'Malley threw his support behind a movement to scrap the $200 million levy and replace it in part with a personal income tax surcharge on high-earners.
O'Malley, a Democrat, has suggested that Franchot's opposition to the tax could lead him not to enforce it vigorously. The governor has also accused the comptroller of dragging his feet on drafting regulations.
Yesterday, House Speaker Michael E. Busch said debate over the technology tax during the legislative session has been hampered to date by the lack of regulations.
"I appreciate ... that we do have greater information now from the comptroller's office than previously," said Busch, who supports a repeal of the tax if alternative revenues can be found.
