Legislative Report -- March 13, 2008

Tech Tax Opponents Rally in Annapolis
The Maryland Chamber, in partnership with the Fight the Tech Tax Coalition Partners, yesterday urged Maryland lawmakers to repeal the computer services sales tax enacted during the November 2007 special session.

Hundreds of tech tax opponents filled Lawyer’s Mall in front of the State House during a morning rally. They packed committee hearings in the afternoon, calling on the House Ways and Means and Senate Budget and Taxation Committees to repeal the tax.

The Maryland Chamber organized a panel of members to testify before both committees. Panelists outlined the negative impacts of this looming tax on technology services. If allowed to take effect on July 1, the computer services sales tax would damage Maryland’s competitiveness and jeopardize high-paying information technology jobs throughout the state.

“What we see overall is a loss of competitiveness. This tax reduces our ability to add more jobs in Maryland. It also reduces our ability to maintain existing jobs in the Baltimore area and throughout the State of Maryland,” said Jerome L. Sanders, Executive Vice President and Chief Operating Officer of BITHGROUP Technologies. “We respectfully request that the law be repealed.”

The tech tax would be especially harmful to small businesses that provide and consume the IT services. While many companies hire employees to perform the services covered by this tax, most small businesses hire outside service providers. Many of these service providers are small businesses themselves with relatively small profit margins.

“With 300 of our 600 small business clients located right here in Maryland, Dataprise is centered directly in the crosshairs of this new computer services tax,” said David Eisner, President and CEO of Dataprise. “Those of us that provide IT services, especially to small and medium businesses, are most often small businesses ourselves.”

Chamber members made it clear that this tax would impact more than one industry. Many industry sectors important to Maryland’s economy would be harmed, including bioscience, financial services, health care, government contracting and more.

“What concerns me is that this tax has been painted as a tax on the IT industry,” said Michael T. Dillon, Esq., director of State and Local Tax for Watkins, Meegan, Drury & Company LLC. “It’s a transaction tax. It’s a tax on the provision and consumption of those services. So in essence, it’s a tax on every company that relies on, or is dependent on, the procurement of those services in order to operate effectively, efficiently and profitably. It’s a tax on every company in the State.”

Maryland Chamber Opposes Income Tax Increase
Today’s Baltimore Sun reports that momentum is building in Annapolis for a plan to increase Maryland’s individual income tax on high wage earners. The bill, SB 1004 would establish two new rate brackets – 6 percent for income between $750,001 and $1 million and 6.5 percent for income in excess of $1 million.

Many lawmakers are promoting this tax increase as an alternative to the computer services sales tax set to take effect on July 1. While the Maryland Chamber appreciates the efforts of lawmakers seeking to build consensus for a plan to repeal the tech tax, it opposes trading one bad tax for another.

The proposed income tax increase would make Maryland’s top rate the 3rd highest in the nation at 9.7 percent, when you combine the state and local income tax rates.

“This income tax increase would serve as a disincentive for job creators to locate or expand in Maryland,” Maryland Chamber President and CEO Kathy Snyder said. “It would also make it more difficult for Maryland companies to attract and retain the highly skilled workers they need.”

In addition, many small businesses would be impacted by this rate hike. Thousands of Maryland businesses are flow-through entities, such as S-Corporations and Limited Liability Companies. These types of businesses don’t file corporate income tax returns. The tax on business income is paid on the personal income tax return of the business owners. Flow-through business owners pay individual income tax on all of the business’s net earnings, even the earnings the business owners reinvests in the business.

For more information on SB 1004, click here or contact Karen Syrylo at ksyrylo@mdchamber.org.

MD Chamber Urges Lawmakers to Support Changes to Corporate Reporting Requirements
The Maryland Chamber of Commerce yesterday encouraged two key committees to pass legislation to moderate the onerous corporate reporting requirements passed during the November 2007 special session.

During the special session, the Maryland General Assembly passed legislation creating the Maryland Business Tax Reform Commission. The Commission will review and evaluate the state's current business tax structure and make recommendations for changes. Policies to be studied include mandatory unitary combined reporting, gross receipts taxes, value added taxes, alternative minimum taxes, and more.

While the Maryland Chamber was pleased the study arose as an alternative to mandatory unitary combined reporting, the legislation went beyond what the government needs to do further analysis. As part of the study, the legislation imposes extensive new reporting requirements on corporations. No other state imposes reporting requirements that are this extensive.

Legislation, SB 444 and HB 664, has been introduced by Sen. Nancy King (D-Dist. 39) and Del. Kumar Barve (D. Dist. 17) to alleviate some of the business community’s concerns about the reporting requirements, while still enabling the commission to collect the necessary data to complete its study. The Maryland Chamber strongly supports this legislation.

“This legislation retains the collection of information necessary for the Comptroller’s Office to fulfill the goal of calculating fiscal estimates for the Commission’s study, while reducing the most onerous and unnecessary data requirements,” said Karen Syrylo, CPA, the Maryland Chamber’s State Taxation Consultant.

If you want to learn more about the Chamber’s efforts, contact Karen Syrylo, CPA at ksyrylo@mdchamber.org. For more information and to encourage your legislators to support this legislation, click here.

B&T to Hear Discriminatory Property Tax Bill Today
The Maryland Chamber will today encourage the Senate Budget & Taxation Committee to oppose legislation, SB 561, that would authorize counties to impose discriminatory levels of taxation on business property.

The legislation would authorize each county to establish classes of real and personal property and to impose varying rates of taxation on each class.

“A minority of states authorize local governments to impose differential tax rates on varying classes of property. Such laws always result in local governments imposing discriminatory and burdensome levels of taxation on business property, sometimes at levels two to three times the level for residential property,” said Ron Wineholt, the Maryland Chamber Vice President of Government Affairs.

The House Ways & Means Committee heard similar legislation, HB 676, on February 28. Defeating this legislation is a Maryland Chamber priority. Contact your legislators today and urge them to oppose SB 561/HB 676. For more information or to take action, click here.

Prevailing Wage Bill Defeated
The Maryland Chamber worked to defeat legislation to expand Maryland’s prevailing wage law. The bill, HB 970, was rejected by the House Economic Matters Committee earlier this week. .

The legislation would have required contractors working on state or local public works projects that cost more than $500,000 and use any state funds to pay a state-determined wage level to their employees.

Current law applies this prevailing wage to projects funded with at least 50 percent state funds. This bill would make the prevailing wage applicable on projects that use any state funds.

Studies by the Department of Legislative Services in 1989 and 1995 determined that the prevailing wage law inflated the cost of public works projects by 5 to 15 percent. “The prevailing wage law undermines the competitive bidding process by requiring projects using state funds to pay a higher labor price than would be required through market based competitive bidding,” Wineholt said during the February 14 committee hearing. “At a time when Maryland needs to build more schools, this bill will cause us to build less.”

Upcoming Committee Meetings

March 13, 2008
Environment Committee
MD Chamber of Commerce
60 West Street, Suite 100, Annapolis, MD 21401
8:30 a.m.

Upcoming Events

April 2, 2008
Chamber 101
Sheraton Annapolis Hotel
173 Jennifer Rd.
Annapolis, MD 21401
8 a.m.

April 22, 2008
Annual Membership Meeting &
Business Hall of Fame Awards Dinner
Hyatt Regency Baltimore
300 Light St
Baltimore, MD 21202
5:30 p.m.