By Douglas Moser
---- — The new sales tax on software and computer services looks doomed as Democratic leaders on Beacon Hill, including Haverhill state Rep. Brian Dempsey, said yesterday they support a repeal in the face of business opposition.
Dempsey, chairman of the House Ways and Means budget committee, said he supported repeal of the 6.25 percent tax, enacted as part of a $500 million transportation package this summer, once affected businesses expressed their opposition after the package was passed.
Momentum toward repeal snowballed this week as several top Democratic officials abandoned support for the tax, which business leaders worried would have a negative impact on the state economy.
Republicans, including state Reps. Bruce Tarr, R-Gloucester and James Lyons, R-Andover, filed a bill repealing the tax earlier this week. Gov. Deval Patrick, who originally proposed the tax in January as part of a $1.9 billion transportation and education plan, announced his support for repeal Tuesday. Yesterday, House Speaker Robert DeLeo, D-Winthrop, and Senate President Therese Murray, D-Plymouth, said at a news conference that they supported repeal and would schedule votes in their chambers.
Local legislators unanimously said they supported ditching the tax. Those who supported it originally cited concerns about its potential impact on Massachusetts’ thriving technology sector, and fears that the tax is overly broad and would hit businesses that not only produce certain software, but those that purchase and use it as well.
“Business groups that supported this early on said they took another look at it and felt it could be damaging to the commonwealth’s reputation as an innovation center,” Dempsey said yesterday. “They had underestimated this. Those groups said they were okay with it, and when they had discussions with their IT departments, that’s when new info and concerns were raised. We’re responding to that.”
State Rep. Linda Dean Campbell, D-Methuen, said a report from the non-profit Massachusetts Taxpayer Foundation that explored exactly what business and services would be subject to the tax and compared it to similar taxes around the country convinced her it was “the most onerous tech tax in the country.”
“It applies to many different industries. It’s not just web design or software, it applies to other companies that utilize these on a large scale,” she said. “I think it’s smart to admit it’s way too big and take it off the table.”
Businesses are unclear about what is subject to the tax, creating uncertainty. Tarr said even the estimates of how much the tax would bring this year – between $161 million and $500 million – were not clear.
State Rep. Diana DiZoglio said she opposed the tax before the package was passed and was glad to see it go. “It’s not good for business, especially along our border with New Hampshire,” she said. “We’re moving into an innovation economy and we need to be promoting job development and economic growth in the area, not squashing it.”
Legislators are considering several options for replacing the $161 million counted on in the budget should a repeal pass, including using some of the $540 million in extra revenue that came in last fiscal year or using revenue such as court settlements, which add up to about $70 million already this year.
Both Murray and DeLeo said they would not be proposing any new taxes or fees to replace the software tax revenue that lawmakers are counting on to backstop increased investments in local aid and public higher and early education.
“It is now evident that the impact of the tax is broader than any of us anticipated or intended, so as a result of these discussions we will support repealing the sales tax on software services and will place this repeal before the membership for a vote,” Murray said.
Tarr said neither a new tax nor the existing tech tax is necessary at all given the extra revenue from last year and the fact that tax revenue so far this year is about $139 million higher than projected.
“The main point is we have the funds to readily close the gap created by repealing the tax,” Tarr said. “We need to cease the discussion of a need to replace this ill-conceived tax with another ill-conceived tax.”
Patrick already has a proposal before the Legislature to spend about $40 million of the surplus from last year and sock the rest away in the stabilization fund.
State Sen. Kathleen O’Connor Ives, D-Newburyport, said she opposed the tax increases earlier this year and does not think the revenue needs to be replaced.
“I don’t believe that replacing it is necessary because tax revenues are presently sufficient,” she said. “We need to continue to explore and fully exhaust all opportunities for reform and waste reduction to fill future budget gaps.”
Tarr said he is leery of putting more money into the transportation system because the 2009 reorganization that created the state Department of Transportation has not yielded anywhere near the $6.5 billion in savings promised.
State Rep. James Lyons, R-Andover, was part of an effort to get a repeal of the tech tax and the new gasoline tax, which will be indexed to rise with inflation starting in 2015, on the 2014 ballot. He said he will keep pressure on to repeal the tech tax with the ballot initiative.
“I think it’s a very important sign that despite the fact that the Democrats have an overwhelming majority in the House and Senate, when people stand united against a tax and spend mentality, we can have an impact,” he said.
Legislators said they expect a vote on repeal within a few weeks.
The tax, which extended the 6.25 percent sales tax to computer and software services, went into effect Sept. 1.
Information from the State House News Service is inbcluded in this report.