O’Malley wants to tax apps, e-books, other downloads

ANNAPOLIS -- Marylanders might have some extra inspiration when they download "Angry Birds" to their smartphones in coming months.

The state would charge a 6 percent sales tax on virtually every downloaded product under an obscure provision in Gov. Martin O'Malley's proposed budget.

In other words, that 99-cent downloaded song from iTunes would cost $1.06, and smartphone apps, e-books for your Kindle, ringtones, chat discussions and other digital products would get pricier. Among the few exceptions, gift certificates and gift cards would not be taxed.

That'll cost you

Under Gov. Martin O'Malley's download tax, the following products would cost more:

Music

Audio greeting cards

Ring tones

Movies

Music videos

Digital books

Newspapers

Magazines

Chat room discussions

Exempted: Gift cards and gift certificates

The Democratic governor's proposal, part of a wide-ranging menu of tax increases to close a $1.1 billion shortfall, is drawing criticism from both Republican lawmakers and the business leaders who say residents and companies can ill afford another charge amid economic turmoil.

"This is another one of the greatest hits of Martin O'Malley," said Maryland House Minority Leader Anthony J. O'Donnell, R-Calvert/St. Mary's. "He just keeps playing this long string of tax tunes. This guy is pumping out so many different tax proposals that there's going to be a custom app just for that."

O'Malley proposed a budget last week that would raise taxes on residents making more than $100,000 annually, double the "flush" tax to $60 a year and increase the price of certain tobacco products. He is also expected to recommend raising the state's 23.5-cents-per-gallon gas tax in coming days.

Democrats contend that higher taxes are necessary if lawmakers are to close a massive budget shortfall without making damaging cuts to education and transportation, among other areas.

But O'Donnell countered that O'Malley was simply proposing an array of taxes in hopes that "at least a few of them" would make it through the General Assembly.

The Maryland Chamber of Commerce, among other groups, has argued that the wording of the bill is too expansive, opening the door to a variety of cryptic taxes on digital products.

"We are open to clarifying the language," said O'Malley spokeswoman Raquel Guillory in response to the criticism. "I can be clear that the proposed language never taxed services."

Just four years ago, the state's technology industry railed against the so-called "Tech Tax" and forced its repeal.

Examiner archive

O'Malley budget hikes taxes for one in five Marylanders (1/18/12)

O'Malley says he wants increase in sales tax (1/11/12)

Md. comptroller warns against taxing Internet sales (11/5/11)

The new download levy is part of a comprehensive blueprint from O'Malley to raise revenue from online sales. He also would require large retailers to collect a sales tax if they conduct more than $10,000 in business annually online.

Comptroller Peter Franchot, the state's tax collector, has raised concerns about the state's ability to raise taxes on Internet sales.

Supporters note that Maryland has lost millions of dollars each year in music, books and movie sales that in their traditional forms were subject to the state's sales tax. The District and 24 other states collect such a tax on digital goods, according to Maryland officials.

bhughes@washingtonexaminer.com