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Boston and Beyond

August 4, 2013

Mass tech tax stirs unease over impact, application

BOSTON — While drivers and smokers conversant in the doings of state government will have a fairly simple calculation for the added costs brought on by a $500 million tax bill, there is more confusion around how tax changes will affect providers and buyers of computer and network services.

“Even the Department of Revenue doesn’t know exactly how this is going to work and what services it’s going to effect,” Rep. Randy Hunt, an East Sandwich Republican and certified public accountant, told the News Service. A former computer programmer, Hunt said, “I can guarantee there will be companies that don’t collect it that later find out that they should have.”

The law that went into effect last Wednesday applies the state’s 6.25 percent sales tax to business-to-business software design and network services – but not data storage.

Lawmakers are eyeing a new revenue source that Massachusetts Taxpayers Foundation President Michael Widmer has warned could generate $500 million, far more than the $161 million estimate lawmakers attached to their tax hike.

The DOR will take comments and plans to release additional guidelines about the tax.

“The problem is the language that was passed is so broad the question is ‘What does it encompass?’” said Theodore Flynn, president of the Massachusetts Society of Certified Public Accountants. He said, “Staples for example has mega-online kinda stuff. Is it going to apply to a Staples? That’s a question and my concern is that it does.”

After overriding a veto from Gov. Deval Patrick and in the face of criticism of the tax, Democratic House and Senate leaders wrote to the Department of Revenue, saying they “will not hesitate” to change the new law if the “revenue or job impacts” are “greater than anticipated.”

Patrick, who favored a larger tax bill and included broader computer service taxes in his proposal, told reporters Wednesday he doesn’t believe the service tax will be as high as Widmer predicted.

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