IEEE-USA and Regional Officers Helped Get Maryland’s Computer Services Tax Repealed
by Russ Harrison, Senior Legislative Representative for Grassroots Activities, IEEE-USA
Maryland’s high-tech industry dodged a bullet this past April. After two months of debate, the Maryland legislature voted to repeal a 6 percent sales tax that would have applied to all computer services purchased in Maryland. The tax was part of a tax reform package passed in November 2007. It was not scheduled to go into affect until June, but the threat of the tax was already causing considerable concern in the industry.
The Computer Service Tax first surfaced in early November. The Maryland Legislature had been debating the Governor’s Tax Reform Bill for over a month. The State House had already passed their version of the bill, which did not contain the Computer Service Tax. As part of last minute negotiations, a tax on landscaping services was removed from the Senate version of the bill and replaced with the Computer Service tax. Within days, the Senate passed their version of the bill. Despite assurances from several legislators that the tax would not be part of the final bill, it was. The Tax Reform Act of 2007, including the Computer Service Tax, was signed into law just before Thanksgiving.
There were no hearings on the Computer Service tax, and almost no public debate. Because of the speed at which the tax was passed into law, IEEE members in Maryland had very little time to comment on the tax. IEEE-USA sent out a Legislative Action Alert on November 9, 2007, but only a few dozen IEEE members were able to respond before the bill was passed the next week.
Fortunately, this wasn’t the end of the fight. Because the Computer Service Tax didn’t go into affect until July, engineers in Maryland had plenty of time to get organized in 2008. Led by the Technology Council of Maryland, a broad coalition of high-tech and other business groups sought a repeal of the tax as soon as the Maryland legislature began its 2008 legislative session.
IEEE-USA and the two Maryland IEEE sections (Baltimore and Washington) were active participants in this coalition. Much has been written in the print media about the role of the various Maryland Tech Councils in repeal of the Computer Services Tax. It is important for IEEE membership to understand the part that IEEE-USA and the regional officers played in working toward the repeal of the legislation.
The coalition focused their efforts on a few key problems with the tax. These included the complexities involved with applying a tax to a service with, frequently, no physical component, the tax’s vague language, and its impact on Maryland’s ability to attract and keep high-tech companies. Their efforts received a big assist when it was learned that governments in Pennsylvania, Delaware and Virginia were actively trying to lure companies out of Maryland. None of these three states tax computer services.
IEEE Region 2 Director (and Maryland resident) John Dentler added another argument to the debate during testimony he gave before the Maryland Ways and Means Committee on March 12, 2008. Dentler pointed out to the committee that computer services are not really a product, but a tool used by virtually every business in Maryland. Requiring engineers to pass on the cost of this tax to their customers would be like requiring carpenters to charge extra when they use saws, but not hammers, or requiring lawyers to charge extra for prepositional phrases, but not other figures of speech. (Of course lawyers were exempted from this tax written by legislators!)
Additionally, since almost every company needs computers to stay competitive, the Computer Service Tax would have made it harder to conduct business in Maryland—any type of business, (except the exempted legal, architectural, and educational services).
If Maryland companies delay upgrading their IT infrastructure, and competitors in Virginia and Pennsylvania do not, over time the Maryland companies will become relatively less competitive compared to their neighbors. The tax was not just a threat to IT companies, but to all Maryland businesses.
Maryland legislators listened. Faced with growing opposition to the tax, Maryland’s Governor, Martin O’Malley, and Senate President, Tom Miller, dropped their firm opposition to re-opening the debate over the Computer Service Tax. In the end, they gave legislators a choice: the Computer Service Tax or a new tax on wealthy taxpayers. In late April, the legislators chose to repeal the Computer Service Tax.
This story reminds engineers of two things. First, our elected leaders don’t understand our profession, our industry or technology. Second, it is up to us to help them understand technology and its impact on society, and we must stand up for ourselves and speak out honestly. Very few legislators in Annapolis understood the impact a tax on computer services would have on businesses in our state. We need to do a better job communicating with our elected leaders to make sure this doesn’t happen again.
Russ Harrison is IEEE-USA’s Senior Legislative Representative for Grassroots Activities. IEEE Region 2 Director John Dentler and Baltimore Section Chair William Semancik also contributed to this article.
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