Software Tax Update

The Department of Revenue has produced new guidelines about the application of the software services tax.

These are draft guidelines which are still subject to change. The important idea in the new interpretation, which is an idea that I had been pushing, is that the tax should apply to modifications of pre-written software only when the pre-written software was itself taxable. The main example of that is open source software which is available for free and is the foundation of many websites. For example, this website uses Apache for web connection, MySQL for the text database, PHP for page creation, WordPress to organize the content environment, and assorted Word Press plugins — all of which are open source products which are free. So, the change makes clear that much website development will continue to be tax-exempt.

There are plenty of ragged edges remaining in the tax. For example, it is common to purchase WordPress themes (to control look and feel) and then modify them, so that a web design project could become taxable. And regardless, the fundamental error of singling out a very competitive and portable industry for taxation is undiminished. The tax should still be repealed, but DOR deserves credit for trying to make the best of a bad situation.

Published by Will Brownsberger

Will Brownsberger is State Senator from the Second Suffolk and Middlesex District.

5 replies on “Software Tax Update”

  1. I concur that the tax should be repealed, but I am
    in support of the Governor’s position before the passage of this tax package, that we need more broad-based taxes to support education in an equitable manner, not just relying on local property taxes to foot the bill.

  2. I agree that the tax should be repealed as you suggest, but this seems to be going in the right direction. How does this interpretation impact the expected revenue when the tax was passed? Presumably it decreases the amount, but by how much?

  3. This has been covered in this blog post:

    No, it doesn’t really solve anything. For example, you use one small piece of commercial software, say with a fixed license fee of 100.00 per developer seat, and that triggers a 6.25 percent tax on services of 100,000.00? Bill, invite some programmers like myself to consult on these matters. The DOR clearly lacks expertise.

    It’s hard for me to imagine how you can carve this tax up simply. Or, perhaps it would be more accurate for me to say that I can poke holes in any compromise they come up with. It seems that Scott Forster is moving forward with his injunction lawsuit. This could stop the tax dead in its tracks. And, in my opinion, the judge is likely to agree with them. So it’s time for congress to come up with another source of revenue, and give up on this. It’s a loser.
    Rick Frank
    Dominion Software, Inc.

  4. Walt, Richard. Agreed that there are still many ambiguous cases and repeal is still the solution.

    As to the revenue impact, I don’t think people really know. The underlying economic data just aren’t granular enough to allow confident estimation of the impact of these changes. Even the estimate of the original total revenue impact involved some good-faith guess work.

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