Software Services Sales Tax?

Will, from the link below, it sounds like those of us who do software consulting received an unwelcome surprise last week:

http://www.mass.gov/dor/businesses/help-and-resources/legal-library/tirs/tirs-by-years/2013-releases/tir-13-10.html

Do you know who supported this change, and how it became law “under the radar”?

Bob

20 replies on “Software Services Sales Tax?”

  1. This tax has been publicly discussed since April.

    I really don’t know whose idea it was to start with, but it was proposed by the House and Senate Ways and Means Committees as part of their approach to funding transportation infrastructure, which I first wrote about at that time and have continued to report on in my transportation forum. It has remained a stable part of the package since then.

    It is not my preferred approach — I would have raised the gas tax to cover more of the transportation burden. I think that somehow we lost that sensible approach from the table when the Governor tried to go with an income tax increase, an idea which everyone treated respectfully, but which never had any legs.

    That said, I supported the package which included it, as it was the package that had a chance of moving forward.

    We didn’t really hear a lot of objection to the software tax through the process until very late. I think the largest concerns we have been hearing have to do with how it is interpreted and applied to out-of-state sales. I can see that bulletin you link to looks complicated. We are likely to try to take it up and make some adjustments in the fall.

  2. I am totally aghast at this kind of tax.. You didn’t hear objections because it was joined to a much more passionate legislation…I’m on tons of forums with techs – national and local, and mailing lists, national and local, I read a lot about Gas and Cigarette taxes but nothing about this until I heard it was vetoed by our Governor, and then overridden. I pay my taxes, and I’m happy to pay additional taxes on conveniences, privileged, and luxury items. But this is anti-small business that raises my rate to my (in- state?) customers. On top of that- it’s wildly uninformed – it’s like someone said “oh lets just tax that sector of business.”
    This has to be rescinded. It’s like taxing my career.

  3. I think you are right. It got lost.

    We are hearing a lot of pushback now and I have to admit it definitely sounds like we need to make some corrections. The conversation is heating up (as much as anything can heat up in August).

  4. Thanks for the further clarifications. I am still kinda of stunned that my “intellect” is a taxable item. Can we tax Automotive repair services? Plumbers, roofers ,electricians too? Configuring software, fixing broken computers, upgrading computer servers, and moving people into new technologies is not a trivial occupation and not only am I disappointed that someone would even consider this work (esp. with the amount of hardware and tax that is associated with computer devices) a taxable commodity.I’m astonished that supposedly intelligent people came up with this scheme -in order to keep the bus and subway fares flat for a couple years.

    How unfair it is for Massachusetts to Tax IN-STATE services but not OUT OF STATE? Unfair enough for me to consider dropping any of my customers who live in Mass or are not already non-profit entities. Nice work! I’m a very small business, and this is an insult to the hundreds of small business computer consulting services who are not GEEK SQUAD, APPLE, STAPLES –
    (the more I think about this the more I wish we could tax legislators for writing legislation).

    How can I help undo this ridiculous tax? Is it impossible?

  5. That’s not very encouraging. It’s such an arbitrary taxation. a Dollar on cigarettes? – that’s an outrageous amount and I don’t even smoke. Why not tax Car Mechanics? Mr. Brownsberger, I consult the way a lawyer would consult, I solve problems and know some technical stuff a lot of regular folks don’t know. I can’t hand people this knowledge in a plastic bag. I give advice, and talk the technical talk like a lawyer would talk about law.. So How about taxing people who use lawyers for their “services” ? We’d make a lot more money. If I sound a little angry – it’s true – I really feel Massachusetts has lost touch with its constituents and that this tax is particularly arbitrary. It makes no common sense at all -esp in the context of Transportation services. Taxing the customers in my industry without taxing other similar services similarly is out and out wrong. While you say this idea had been batted around since April -it was not well pronounced in the shadow of an additional $1 cigarette (and added gas) tax which I had heard about months ago.

  6. Additionally, Taxes in a society are inevitable ok- and I don’t pay these taxes, but my customers will. However, much of the time my customers have no choice but to use me to solve their problem and that is who you are taxing- a bunch of Elderly retired folks, small business entities, and artists (you know wealthy artists) who need help with their computers.

  7. The Senator’s office has received the following information from the Department of Revenue:

    “The Department of Revenue has responded to the recently-enacted tax legislation by creating a comprehensive online information resource for taxpayers. The application of the sales and use tax for certain computer/software services is generating a number of comments and inquiries and DOR responded with an extensive set of FAQs.

    We anticipate that you may be receiving inquiries as well and invite you to use DOR as a resource when responding.

    1. A DOR website page dedicated to providing information on the recent tax changes may be accessed at http://www.mass.gov/dor/newtaxinfo.

    2. The Technical Information Release related to the application of the sales and use tax on computer/software services and a set of FAQs on the subject matter may be accessed from this page.

    3. DOR anticipates providing further guidance on the application of sales and use tax on computer/software services and asks that any comments or suggestions be submitted to [email protected].

    4. For additional information or questions, please call 617-887-6367 or 800-392-6089 in MA only.

    We will continue to update the FAQs as additional comments, inquiries or suggestions are submitted. DOR will arrange focus groups over the next several weeks, with representatives of industries affected by the new legislation, to learn more about business practices and any areas of uncertainty. Information about the meetings will be posted on the DOR
    website.”

    Anne Johnson Landry
    Committee Counsel and Policy Advisor
    Office of State Senator William N. Brownsberger

  8. Conceded, Benjamin.

    I have to agree that the choice of this particular service industry is arbitrary and I cannot defend it on a principled basis.

    This went through without a lot of discussion — people were fighting about bigger things — and I have to admit it doesn’t make a lot of sense.

    Hoping to make some kind of adjustment.

  9. Senator Brownsberger – I have heard you are a good man and a good politician. I have no animus toward you. But I am a software developer in your district, like hundreds or even thousands of others. Any one of us could have told you how problematic and awful this tax would be. I am upset no one thought to talk to any one of us about this. Yes, it has been public for a few months, but it was vague and the tech community foolishly didn’t jump in. My peers were naive about politics. Never again.

    But that doesn’t relieve the government from reaching out to one of the industries that makes this state great. It should at least discuss its plans for taxes and regulation with us.

  10. I can only agree that it didn’t get enough discussion. That happened because people put much bigger things in play during the process so that it just got ignored.

    At this point, we just need to see what can be done to fix or mitigate the problem.

  11. I’m hoping there are other Computer consulting folks reading this blog (and others) about this Tax, & alerting their representatives & bringing awareness to their customers and social networks. FYI

    Here’s a link to a Globe article: http://www.boston.com/businessupdates/2013/08/06/business-leaders-seek-repeal-new-computer-tax/VmixEfifntycxuqM5UskFI/story.html

    Boston Biz Journal:
    http://www.bizjournals.com/boston/news/2013/08/06/business-lobbyists-to-petition-for-new.html?page=all

    and a website:
    http://repealtheitservicetax.com

  12. Just to add a little more info, I attended a gathering in Boston last night which included representatives from the Massachusetts Taxpayer Foundation (http://www.masstaxpayers.org/publications/public_finance/budget/fy_2014/20130807/business_leaders_file_ballot_petition_repeal_sof) and Mass High Tech Council as well as about 80 representatives of the industry from Open source devs to Small Business consultants like me.
    No representatives from any POLITICAL entity was there. Which I think is a shame. MTF are getting a ballot initiative going but that kind of keeps us on the hook for collecting taxes until 2014.

    I asked MHTC guy where were they when the the ways and means committee was getting guidance and he said they were ignored. I am in serious -i can’t believe anyone thought this was a good idea- mode. If you poll the DOR and Legislator on what/who is taxable and what not to tax you get different results.
    This is a lose-lose situation for Mass.
    But I feel my Legislators must step up and PUBLICLY announce the inconsistency of this Tax burden
    and take on the redress as well (Citizens vote – but we don’t write these laws).

  13. There is no way to narrow or clarify the bill. The DOR is attempting to make a distinction between what they call ” pre-written” software ( not a term used in the industry) and ” custom software”. However, it is my expert opinion that such a distinction cannot be reasonably made. Therefore, the legislators are asking the DOR to do the impossible.

    The law cannot be narrowed, and so therefor all software services will be taxed. I predict it will be repealed by ballot initiative.

    I suggest that the democrats get together and admit they messed this one up. Otherwise, they face no only repeal of the tax but likely the loss of a few seats. They are underestimating the impact of this bill, both politically and economically, at their own peril.

    Richard Frank
    President
    Dominion Software, Inc
    http://dominionsw.com

  14. It’s tough to admit error, but the more we learn about how this is playing out — and I’m getting a lot of thoughtful emails as well as the comments here — the more I agree that we need to repeal it. It is just not a workable tax, putting aside the arguably discriminatory nature of it.

    The challenge will be how to handle repeal financially. Because the tax is vaguely defined and because the relevant economic data suffer from the same ambiguities, it is difficult to estimate the actual revenue likely to be raised from the tax. However, a nickel on the gas tax would suffice to offset the revenue loss as officially estimated for budgeting purposes. I have consistently supported the gas tax as the simplest and the most appropriate way to fund transportation infrastructure investment.

  15. Thank you for the reply. I agree that the gas tax makes the most sense, since it is almost exclusively paid by those who are using the roads.

    In addition, it may encourage people to buy more energy efficient cars, use public transit, (less Co2 emitted) or bike ( more exercise) and so has additional potential “good” outcomes.

    I think the only way a services tax can work is if it is simple and broad – tax all services – lawyers, landscapers, etc. with few or no exceptions, at a low rate.

    Thanks,

    Richard Frank.

  16. I would also like to point out what seems to be a somewhat arbitrary deception to the tax. Note item 41 on the FAQ :

    http://www.mass.gov/dor/docs/dor/law-changes/faqss-computer-software-2013.pdf

    Temporary staffing agencies are not required to collect the sakes tax. So, if a consultant works thru a “headhunter”, his or her services are not taxable. But, if that same person contracts directly with the company, it would seem their services are taxable. The is an unfair distinction, penalizing someone who gets a gig on their own instead of thru an agency. This is the kind of thing that is driving us nuts. Because, sometimes i work thru an agency and sometimes not. And so. If I work thru an agency, NO SERVICE TAX IS DUE. Weird.

  17. Will, thank you for taking this topic seriously — but I’ve got to add the comic relief.

    if a nickel on the gas tax would offset the loss in revenue from repealing this . . . what about motor vehicles whose engines are run by custom (rather than pre-written) software?

    Yeah, only I would ask.

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