Coalition Of Businesses Fights New Mass. Software Services Tax

BOSTON — A broad coalition of businesses plans to file a citizens petition on Wednesday that would roll back a new tax on software services. They say the tax could cost them more than a half-billion dollars and put a brake on the state’s growing innovation economy.

The Legislature enacted the new 6.25 percent software services tax on July 25. It went into effect six days later, catching by surprise many who will likely be affected.

That includes IT executives, independent software and website designers and their clients in a wide array of industries, from health care and biotech to financial services to retail.

“It’s not drafted by anyone who knew anything about software. Having read it, that’s the case,” said David Friedman, president of Boston Logic, which provides website applications to the real estate industry. He attended an IT forum Tuesday in Boston’s Seaport District, which is home to many startup IT companies.

Friedman said he’s still trying to figure out what he calls the law’s confusing language about exactly what software work is or is not subject to the tax. But he said it could easily cost individual customers hundreds of dollars a month, and if the bills are too big, he said, some tech companies may opt to move to a lower-tax state.

“It’s a real consideration,” he said. “There are some very big software companies here that are going to wonder what to do about that, and it could cause some companies to relocate, very realistically.”

Other IT executives say the same, and some heavy-hitters are signing on to the initiative petition against the new tax. Signers include executives from the Massachusetts High Technology Council, Staples and BJ’s Wholesale. The Springfield and North Shore chambers of commerce are on board.

The initial petition is going to the state attorney general Wednesday. But the big effort to get the thousands of signatures needed to put the issue on the 2014 statewide ballot will be spearheaded by the Massachusetts Taxpayers Foundation. Its president, Michael Widmer, argued that while lawmakers expect the tax to raise about $160 million, it’s so broad, it will raise at least a half-billion dollars.

“This is a direct tax on investments made by thousands of companies across Massachusetts doing exactly what we encouraged them to do: innovate,” Widmer said. “Only now we are saying to them, ‘You innovate and we are going to put a 6.25 percent tax on you for doing that.’ ”

The business community should have been ready, said Sen. Stephen Brewer, of Barre, who co-chairs the Legislature’s Ways and Means Committee. There were seven hearings around the state on Gov. Deval Patrick’s proposed budget, he noted, which included a wider-ranging version of the tax. And Brewer said revenues are needed to help pay for transportation projects supported by the business community.

“We feel very strongly in support of the innovation economy,” Brewer said. “But many of those employees that would be utilizing the innovation economy need to get from their residence to their place of business. It requires having adequate investment in the MBTA, in regional bus transportation, in good roads and bridges.”

Brewer said his committee sent a letter to the state Department of Revenue urging the narrowest possible interpretation of the measure. And if the language proves over-broad, he said, the Legislature can confine its parameters to make sure it does not raise more than was intended. But he still defends its logic.

“We decided that was a logical exposure for a very, very lucrative industry in the commonwealth,” Brewer said. “It’s in the multi-billions of dollars. And we do put sales taxes on an awful lot of other items in our society. They are never pleasant to do.”

It looks like the unpleasantness will now be drawn out. In addition to a well-financed campaign against the software services tax, opponents of the Legislature’s hike in the gas tax are gearing up for a repeal drive, too.

Together, both efforts could set up just the kind of political dynamic Democrats hoped would be averted when they rejected the governor’s $1.9 billion plan and went for a more modest package. In 2014, they could find themselves running for re-election in the midst of campaigns against taxes that they voted for.

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  • jefe68

    Way to go legislators. Tax the largest growing segment of the Massachusetts economy into leaving. I’m a progressive politically and this is one of the dumbest ideas I’ve ever heard of.

    This statement from Sen. Stephen Brewer, of Barre is absurd:“But many of those employees that would be utilizing the innovation economy need to get from their residence to their place of business. It requires having adequate investment in the MBTA, in regional bus transportation, in good roads and bridges.”

    So the people who work in this sector for some reason are being singled out for a
    tax to keep the infrastructure and MBTA going. Really? This is fairness?
    This man Barre needs to be told as do all the legislators that it’s not the fault of the citizens of the commonwealth that the MBTA has been mismanaged for decades. It’s not the fault of the citizens of the commonwealth that the Big Dig was also mismanaged.

    If this tax stays watch for the exodus for high tech and start ups.

    • dust truck

      I still don’t understand why MBTA fares are the third-rail of Massachusetts politics. They’re the lowest fares for public transportation in the nation and yet the T is afraid that poor people won’t be able to ride if they increase fares by $0.50.

      • J__o__h__n

        They have gone up recently and probably will again. The fares aren’t the reason the MBTA is a financial drain – years of bad management and being saddled with debt by the legislature are.

    • PaulD

      So it’s a bad idea to tax this industry heavily, but not other industries? The logical conclusion of your argument here is that the MA economy would be better if it had lower taxes on all areas of business, so why favor this one?

      • jefe68

        I’m not against taxes. I’m not sure where you get the idea I am.
        I was stating that this tax is unfair and will have consequences as high tech companies leave the state.
        There is a point when taxing industries is counter productive.
        There has to be a balance. The way Sen. Brewer explained it made it sound as if this sector was going to pay an extra 6.5% in taxes.
        If a self employed web designer has to pay this they will go out of business or move to another state such as New Hampshire or Connecticut.

    • PaulD

      As for Brewer’s comment, I agree with you. People who work in all sectors benefit from better roads and bridges. As for the MBTA, it’s arguable that everyone in the Boston metro area benefits even if they don’t use it but certainly the people who do use it by far gain the most from improvements and low fares. If the improvements to the MBTA are accomplished at the expense of road improvements, then the rest of the people in the state don’t gain anything.

  • J P Fitzsimmons

    This has to be an all time high for stupid legislation. They pick out one sector, the one with the strongest growth potential for the state, and decide to tax it. I hope they include lawyers but I’m sure they were clever enough to exclude that group.

  • Nick Sophinos

    That’s rough on the MA businesses since businesses in other states can now charge 4% more than they do but still came come in with a lower bid on work.

  • http://suijurisforum.com/ noone special

    Did you all forget the MBTA is paying the Big Dig bonds? You know the ones that where index to Libor? They also got sucked into the interest rat swaps derivatives con. Brewer is talking out his rear. This money isn’t going to the MBTA. They just voted that down remember? It’s going to pay the Wall St. Big Pigs.

    • dust truck

      I HAD forgotten! Thanks for the reminder. :(

  • heatherGirl

    “But many of those employees that would be utilizing the innovation economy need to get from their residence to their place of business. It requires having adequate investment in the MBTA, in regional bus transportation, in good roads and bridges.”
    So people who work in software are the only people who do this? So there has to be a special tax just for them?
    Isn’t the real reason for this the same old reason, the same reason Detroit went under….. that the transportation unions have nice big fat pensions and benefit packages?
    And even stranger is that year after year we need more and more money to rebuild all this infrastructure, yet the roads still suck! Makes one wonder were the money goes – because it sure is not going to the actual roads!

  • pato

    Why don’t they just put a sales tax on everything including legal services… oh I forgot, the legislators are all damn lawyers and moonlight on the side.

  • Herbert W Cooper

    The thing about this tax is that it will hit smaller businesses harder, particularly ones which do most of their business in Massachusetts. While their customers might hire companies from outside Massachusetts (and just ignore the tax or be ignorant of the tax) to save the 6.25%, the small IT businesses and consultants will also be burdened with new tax reporting requirements which they might not otherwise have had – so the paperwork will also hit them economically. (… and if they have to spend time talking to an accountant or attorney to interpret the law and their obligations, that’s another hit.)

    Larger IT companies with larger customers will no doubt find creative (“but legal”) ways to avoid or minimize the tax.

    New Hampshire doesn’t require passports to cross the border …

  • Brian Sanders

    Senator Brewer was one of the main proponents of the new Mass software/IT tax. Please contact his office ((617) 722-1540) and post a message to his Facebook page (https://www.facebook.com/SenatorBrewer) to let him know what you think of the tax, and to encourage him to change his position and work to repeal it.

  • fun bobby

    its almost as if deval wants to change Mass from silicone valley to Reno

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