The tide may be turning on the tech tax.
On Tuesday, Gov. Deval Patrick dropped his support for the much-reviled duty on software design services, telling the State House News Service it was a “serious blot” on the state’s reputation as an innovation center. Since it was the governor who proposed the tax in the first place, his change of heart is good news.
Of course, saying you don’t like a tax and striking it from the books are two different things. As in many things we’ve witnessed on Beacon Hill, there can be a long gap between words and deeds.
Technology companies, including many of those North of Boston, are strongly opposed to the extension of the 6.25 percent sales tax to computer and software services. They say the law is so vague and poorly written it could apply to any number of businesses and services.
For example, according to state tax officials, if a state website designer is changing pre-written software for a customer, the work is taxed. But if that same designer creates new software, the job is not taxed. Software training isn’t taxed. Installing it is.
“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 earlier. A former computer programmer, Hunt said last month, “I can guarantee there will be companies that don’t collect it that later find out that they should have.”
Lawmakers say the measure was meant to raise $161 million; IT executives, however, say the tax rules are so soft and spongy they could end up paying closer to $500 million. Talk about stifling innovation.
Speaking at yesterday’s North Shore Chamber breakfast, Salem, Mass., attorney and chamber member Bill Tinti called the tax “the largest tax on technology of all the states in this country. All of us in this room, including the cities and towns, will be the victims of this tax.”
The chamber, along with the Massachusetts Taxpayers Foundation, was one of the first groups to rise in opposition to the tax, and others have followed. House and Senate Republicans this week said they will file legislation to repeal the measure (as Democratic state Sen. Karen Spilka has already done), and there is an tech industry-backed initiative petition headed for the 2014 ballot if lawmakers don’t take action.
Even with those positive developments, it is important to keep the pressure on the Statehouse. House Speaker Robert DeLeo and Senate President Therese Murray have been somewhat noncommittal about repealing the tax, and Patrick is already talking about finding other revenue (likely reaching into taxpayers’ pockets in a different way) to make up the difference.
The entire tax bill — with included hikes in the gasoline and cigarette taxes — was ill-considered. Legislators and the governor insisted the increases were necessary to support transportation projects, even as current tax collections are producing revenue surpluses.
As bad as the cigarette and gas taxes are, they are not as stifling to the state’s struggling economy as the computer services tax.
As Tinti noted yesterday, those opposed to the tax shouldn’t ease up on their efforts until it is “rightly and justifiably buried.”