Legislative leaders announced today that they support the repeal of the software tax. The Governor made the same announcement yesterday.
I am relieved by this announcement — it means a mistake will be fixed and we will avoid much future controversy. I had become convinced last month that the tax (a) was simply not computable in many instances; (b) sent a very negative message.
It will take a couple of weeks for a repeal to be presented to and passed by both branches, but it now seems clear that the repeal will be in place by the end of the month. My sense of my colleagues is that the repeal will not encounter major difficulties on the Senate floor. Because it involves a change in taxation — even though it is a reduction in taxation — it must be addressed first by the House. That is most likely to occur next week (the week of 9/16), with the Senate addressing it in the following week.
Although the tax was part of the transportation funding package, repeal will not actually reduce the amount of revenues committed to transportation. The transportation package added some revenues for transportation, but also rededicated some existing general revenues for transportation. The software tax back-filled the hole in the general budget left by the rededication of existing revenues. So, the hole left by repeal is that hole in the general state budget. A strong finish to the last fiscal year (FY2013) will allow us to plug that hole using reserves in the current fiscal year (FY2014). In Fiscal 2015 and beyond, the budget will be tighter by the amount of the lost revenues, which had been estimated at $161 million. This is about 0.5% of the state budget and if revenues continue to grow well — as they appear to be doing — the loss may not materially diminish future service levels.
The decision sends a good message that Beacon Hill can hear feedback and admit error. The initial error was really a collective error in that many in the business community initially missed the problem too and therefore were supportive of the tax package. The real outcry from businesses didn’t emerge until the announcement of the passage of the new tax caused businesses to really start thinking about how it would be computed by their organizations — that’s when I began to hear in high volume from my constituents about the issue.
The whole story should be history by the end of the month.