Gov. Ed Rendell says a broadened sales tax, at a reduced rate, would be fairer for consumers and businesses alike, but computer services companies say the proposed changes to the tax code would disproportionately affect their industry, to the tune of $210 million a year.

"It would be placing Pennsylvania among only a handful of states that levy taxes on computer services," said Brian Kennedy, vice president of government affairs with the Pittsburgh Technology Council, a trade group.

"You're going to be harming the ability of those firms to remain competitive." If the tax changes pass into law, they will represent "one of the largest small-business tax increases in Pennsylvania history," he said.

Mr. Rendell, in his February budget address, said he hoped to reduce the statewide sales tax rate from 6 percent to 4 percent, but include dozens of items and services that are now exempt, including legal services, newspapers, funerals and computer services. In making his sales pitch for the broadened tax base, Mr. Rendell has been pointing to the alleged inanity of some of the exempted items -- candy, helicopters and gold bullion.

But those items account for just a fraction of the $800 million in new revenues that the governor hopes to net with the revamped sales tax.

In all, 74 categories of goods and services would be newly taxable under the governor's plan, but computer services, "business services" -- advertising and public relations, consulting, research and development, and information services -- and "professional services," such as law and accounting, would be disproportionately affected, and account for the bulk of the new revenues. (Computers themselves, a tangible good, already are subject to the sales tax.)

The computer services industry points to the recent experience in Maryland as a good reason not install a sales tax on computer services. Maryland's Legislature, in 2007, approved a sales tax on computer services to take effect in July 2008. In the intervening months, recruiters from Pennsylvania and other neighboring states tried to poach Maryland companies. Pressure from Maryland-based tech trade groups helped repeal the tax, which was expected to take in $200 million a year, before it ever took effect.

"I think the governor is rightly trying to prepare [for] a very big problem," Mr. Kennedy said, speaking of the widely forecast state budget crunch, created by reduced federal aid and an increase in state pension contributions. But a computer services sales tax would punish the largest consumers of those services, such as manufacturers and banks. "They are competing in a global economy. When they have to pay more for IT services in Pennsylvania, they're at a competitive disadvantage," he said.

Though the governor included all of the 74 exempted items in a sales tax proposal, each of those items are subject to negotiation, supposing the bid to change the tax rate gained traction in the Legislature.

So it's not an all-or-nothing proposition -- some items and services could remain exempt, while others might be thrown onto the sales tax rolls, in order to broker a deal.

Senate Republican spokesman Erik Arneson said Mr. Rendell was being disingenuous in calling some of the exemptions frivolous, noting that the governor himself signed at least two of those exemptions, including the one on helicopter sales, which was approved just last year.

"The governor is not being entirely forthright with the way he is framing the debate," Mr. Arneson said. "Gold bullion, helicopters -- he loves to trumpet as great examples of, in his view, nonsense exemptions."

But at the time the helicopter exemption was signed, Mr. Rendell's chief of staff, Steve Crawford, had this to say to The Philadelphia Inquirer: "It costs $100,000 and it creates 300 jobs. ... That's a pretty good trade."

The helicopter sales tax exemption was slipped into last year's budget to convince Sikorsky Aircraft Corp. to expand its operation near Coatesville, which is about 45 miles west of Philadelphia.

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