I am a long-time resident of Massachusetts and the co-owner of Development Partners Software Corporation, a small software consulting company specializing in helping businesses build custom software that effectively leverages cloud computing for competitive advantage.
A few days ago some changes to Massachusetts law were enacted that alter the tax policy around software consulting. I learned of this through Technical Information Release TIR 13-10 which was published to www.mass.gov and is dated July 25, 2013.
Quoting from TIR 13-10, “Chapters 64H and 64I of the General Laws have been amended to apply the sales and use tax to certain services relating to computer system design and to modification, integration, enhancement, installation, or configuration of standardized or prewritten software.” (I’ve added emphasis on the term prewritten since that is a pivotal term.)
It is worth pointing out that I was not successful in finding the actual final legislation (all I have to go on is the TIR paraphrase) since the wording does not yet appear to be updated on the web. For example, Chapter 64H, Section 1 (which I found through this tool for searching our laws) does not contain the changes indicated in the TIR. I also could not find the phrase “information management services” – listed in the TIR as part of the updated verbiage – using the search tool.
Fear, uncertainty, and doubt – FUD, for short – is well known to the software community where vendors can be highly competitive and might sometimes plant seeds of doubt about another vendor in hopes that help them get the sale. But sometimes FUD just happens by mistake when communication is unclear – and I hope this new tax legislation is that type of FUD, and we’ll soon get a “sorry, didn’t mean to scare you” clarification. But in the mean time…
I have two primary concerns about this legislation:
- Insanely Short Notice – Are there seriously only 7 days to prepare for this confusing, far-reaching, and disruptive change in tax policy to take effect?
- Sweeping Inclusiveness – The language around which types of software consulting are to be impacted includes an extremely broad range of services.
I have other concerns too, but I’m assuming there are good answers to them. For example, if I have subcontractors on a taxable project, and they are performing taxable integration work, is their time also taxable? I assume not. But would be nice to see that in writing. On to my two primary concerns…
Insanely Short Notice
The legislation was enacted on July 24, 2013 TIR 13-10 was published on July 25, 2013, and the new taxes are effective beginning on July 31, 2013.
Yes, this new tax takes effect a mere week after being made law, a mere six days after TIR 13-10 was published, and this is all for a bill that most software consultants doing business in Massachusetts are likely not even aware of it. (I heard of it through my friend Jason Haley who forwarded me the link. Like 100% of the other software consultants, I am not expecting a blind-side like this, so am not spending time watching for it, but am focused on my business.) I know I certainly would not know about it if I hadn’t been tipped off by Jason. It seems obvious to me that a significant percentage of impacted businesses will not even be aware of the new requirements until after the taxation has begun.
IANAL, but my reading suggests I have the following new obligations:
- Determine which of my consulting services are taxable (more on this in the “Broad Inclusiveness” section below) – which may require me to retain both a lawyer and an accountant for guidance
- Collect taxes from customers
- Set up an online tax account with the state (?)
- Pay periodic taxes to the state of Massachusetts
Now consider the awkwardness of the very short notice. It is naïve to think that the tax “just gets paid” – it can impact my ability to sell services (since the price tag has gone up) and makes all existing deals awkward since the cost of doing business has gone up so unexpectedly.
Consider a deal that’s in place for my company to provide $10,000 worth of (now taxable) services to a client. The $10,000 is already negotiated. Now throw in the 6.25% sales tax. Where’s the $625 for taxes supposed to come from? If my client absorbs this, they will pay more than they budgeted. Or maybe they want to back out of the deal or want my company to take on this unexpected cost. If my company absorbs it, I will receive less revenue than budgeted. If my company receives less, what about subcontractors that’ I’ve already lined up? Or my own company’s bottom line? Change happens – I realize that, and am okay with that – but sweeping changes can be painful – and enacting such sweeping changes so suddenly seems reckless and patently unfair.
This sudden tax complicates my company’s existing and ongoing business arrangements, causes me to waste time working through these new factors with clients, and doesn’t have an iota of business value for me or my clients. An unwelcome distraction. How does this help the business climate?
A little notice would go a long way. How about at least six months or a year’s notice? I find it absurd that our lawmakers expect businesses to react so rapidly to something that is so fundamentally disruptive. I didn’t look, but it makes me wonder whether there are guidelines in the Massachusetts State Constitution around whether taxes can be implemented with such short notice.
And, as mentioned above, I looked for – but was unsuccessful in finding – the actual new law with the updated text. Shouldn’t laws be fully published before we are expected to follow them? Are they out there somewhere else but I failed to find them?
Sweeping Inclusiveness
Cribbing from TIR 13-10, “The Act also amended the definition, in section 1 of Chapter 64H, of ‘services’ that are taxable under Massachusetts sales and use taxes.” It goes on to define services as “limited to the following items: telecommunications services, computer system design services and the modification, integration, enhancement, installation or configuration of standardized software.” I added the emphasis on the term standardized since it is such an important qualifier; I am not sure why our law makers did use the term prewritten here, as was used above, or whether they consider them synonyms. Any linguists wish to offer an opinion?
I encountered an earlier draft of this law a couple of months ago and was not nearly so concerned since the focus then was Software as a Service which is so common these days that we simply call it SaaS. Exactly what constitutes SaaS is not perfectly defined, but is surely less encompassing than this new law which dropped the term Software as a Service in favor of the far broader Software Services.
Of further relevance is the first footnote in TIR 13-10 which states “The taxability of data access, data processing or information services is unchanged by the Act; these services are not subject to sales/use tax.” This seemingly gives hope – the listed activities “are not subject to sales/use tax” – until you realize that this uses different terminology than the main text which formally defines “services” as the taxable activity; the term “services” is not used in the same way in this footnote.
What is “Prewritten” Software
Let’s consider a few scenarios around the sale of prewritten software.
Consider a large software vendor selling prewritten database software and related tools. The software has been around for decades and there’s little question that it is “prewritten” and is sold many times over. Selling copies of such prewritten software logically should trigger sales tax collection. This is not changed by this law (though keep in mind IANAL).
Now suppose this large software vendor makes a million dollar deal to sell some of this software and also provide the expert services to handle the installation, configuration, and integration for the customer’s environment. Should they apportion $500k to software and $500k to consulting? Or might they be incented – for tax reasons – to negotiate $200k for the software and $800k for consulting? Shifting the cost from software licenses to services means lower taxes on the software, 6.25% of $300k in this hypothetical scenario. In this situation, the software sale can not happen without the consulting, and no consulting would be needed without the software sale. It seems that the change to the tax law would target this sort of deal – just tax the whole deal so the software vendor can’t play games just to avoid taxes.
Okay – there is obviously more that’s being taxed – but there’s a “fairness” angle there because it reduces “cheating” – so while I’m not a fan, I can at least see the logic. At first I thought the law was targeting these kinds of deals, but after reflection realized its language made it more sweeping.
What other scenarios seem included in this law? A few examples follow. But unlike the scenario described above, I see no logical tie-in with existing tax revenue streams, so I believe (hope?) these additional scenarios included by the wording in the law are unintended.
Unexpected Consequences? – Open Source Software
EDIT 01-Aug-2013: This, sadly, is officially not an unintended consequence since adding open source use to an otherwise untaxed software services project can trigger the tax: https://blog.codingoutloud.com/2013/08/01/its-official-new-mass-tax-targets-use-of-open-source-in-software-consulting-services/
There is a great deal of software in use use in the world that is available for anyone to use, for any purpose, with full access to the underlying source code needed to modify or understand the software. This is commonly known as Open Source Software.
By definition, all open source software is “prewritten” software.
Examples of open source software includes the Firefox and Chrome web browsers, the Android operating system the powers mobile phones from Google, the software behind TiVo (the original DVR), and the WordPress blogging platform. This is only a very small sampling of thousands of software packages available as open source.
Let’s consider the use of WordPress. What happens when I hire someone to create me a blog? It is very common that such software projects are not built from scratch, but are based on prewritten software, such as WordPress. WordPress is then customized to suit the needs of the client, perhaps including integration with their existing database. Is building a blog with prewritten WordPress now taxable?
Not all open source software packages are known to the public, but the Linux operating system is perhaps one that is somewhat famous, even outside the software development community. Are all systems integration projects based on the prewritten Linux operation system now taxable?
If you answer that question by following-up with – It depends on whether you paid for the open source software? – then that’s even more complex. It turns out that sometimes you pay for open source software – even though you don’t have to – for a number of potential reasons, one of which is simply so someone will pick up the phone if you need technical support. Does paying for the open source software (now or months later) trigger taxation (perhaps retroactively, if I buy the software later) on the associated consulting services?
Unexpected Consequences? – Third-Party Components
Software developers frequently use third-party components in building solutions for clients since it can greatly enhance the polish, while dramatically speeding time to market and reducing project risk and complexity. While there is a lot of similarity to the use of open source software (which can also take the form of software components), let’s focus on only those third-party components which are commercially licensed. There is a significant industry around this, with a popular example being able to buy a third-party component to add “spreadsheet” functionality to a business application.
Or let’s go one step further and consider Excel itself – the ubiquitous business tool that many third-party components emulate. Excel is a software development platform in itself and can be integrated with your company’s technical environment.
Use of a third-party commercial component or building an application on top of an application like Excel definitely includes taxable software sales, but does it trigger the taxation law for the associated development services?
Unexpected Consequences? – Cloud Computing
The final example I’ll offer is where all of the above considerations converge – and then some. I personally make my living helping companies – mostly small businesses looking for a competitive edge – build their own software solutions that leverage cloud computing.
Cloud computing is all about using prewritten software. The customer builds some software for themselves – the parts that are very specific to their business – then rents all the other capabilities they need but don’t differentiate them. For example, they may build their own SaaS web or mobile applications for their customers that contains specialized logic specific to their business. Then they rent the rest of what they need – they rent the operating system, the hardware it runs on, databases, storage services, and so forth. This allows them to focus on the part that matters – and as quickly as possible get great software out there to help them build their own business.
Consider this as similar to the utility access to water or electricity. Every building needs water and electricity, but that’s rarely a business differentiator. You need it, but it’s already been figured out, and “just works” if you use the standard existing solutions. Cloud services are like this. For most business applications, a database is needed, storage services are needed, an operating system is needed, and so forth, but only a relatively small amount of logic really differentiates the application. Your application-specific logic is almost always much, much less sophisticated than services you rent, such as the Windows Server or Linux operating system or the SQL Server, SQL Azure, or MySQL database.
Databases are water and operating systems are electricity. You need these prewritten services, and you build around them. If they work well, they go unnoticed. But, in the cloud computing world, will they result in related software services being taxed?
In Closing
Reusing existing software is at the heart of what helps the software industry advance to higher levels of productivity.
Bottom line: NOT using prewritten software constitutes malpractice for most software projects!
<sarcasm>
Should we start taxing lawyers for using prewritten boilerplate contracts? Isn’t that the same as selling a service that leverages prewritten assets. I know much contract language has gone through many, many years of hardening, refining, and tuning and is effectively resold in order to make downstream deals more productive and less risky. This is very much selling a preexisting asset, with some customization (systems integration) work. Seems to me pretty analogous to what is happening with software.
I’m also wondering whether the state’s lawmakers believe the productivity and profits lost by software consultants and their clients will be made up by taxes on the additional revenue that will now flow to lawyers and accountants as the software industry scrambles to handle the understanding and execution of these new policies?
</sarcasm>
TIR 13-10 also offers that “Comments or suggestions may be sent to rulesandregs@dor.state.ma.us” so I have forwarded a link to this post to that email address. I will post here any relevant response.
01-Aug-2013 UPDATE: This morning I received the following email response:
Thank you for sending comments to the Department of Revenue regarding TIR 13-10 and the sales tax on computer/software services. In response to the large volume of questions, the Department has posted answers to Frequently Asked Questions on the DOR Website at: http://www.mass.gov/dor/docs/dor/law-changes/faqss-computer-software-2013.pdf
The FAQs will be updated as additional questions are received and reviewed.
My business and my home are in Needham, MA. Needham is most ably represented by Massachusetts Representative Denise Garlick (who I’ve known for many years, starting when our sons were in the same Boy Scout troop). On Monday I emailed Representative Garlick’s office a reference to this letter. On Tuesday I emailed her and Massachusetts Senator Michael F. Rush. Hoping to hear back from both.
01-Aug-2013 UPDATE: I heard back from Representative Garlick. She’s concerned and seems her understanding of the law as written may differ from DOR interpretation. Here’s an excerpt from her email:
My understanding as I voted (Massachusetts House of Representatives) is that this proposal does not tax:
· custom built computer software
· data recovery services
· website design, “the cloud”
· access to software hosted on a third party server
Further, the computer services tax included in this plan does not tax :
· downloaded music
· books or games
Additionally, this tax does not extend to many consumer computer services including technical support, removing software from a computer (for example, removing malware or a virus), or running diagnostics.
I think “custom built computer software” and “website design” appear (in my interpretation) to be covered as taxable in the DOR FAQ, but this contrary to Representative Garlick’s expectations when she voted for it. Rep. Garlick is also “trying to schedule a focus group discussion in Needham with DOR to so that you may share more about business practices and any areas of uncertainty that you may regarding the legislation. I will keep you posted on a date, time, and location of the meeting. ” I told her this was an excellent idea.
I also tweeted a reference to this letter. If you are concerned and wish to share, please feel free to retweet.
Your comments to this letter also welcome.
Coding Out Loud 
The wording is rather broad. Technically, Windows and the .NET runtime are prewritten, standardized software, so essentially anything you write that runs on an operating system or VM could be covered here. Whoever write the law doesn’t have a clue how software works.
Re: “Whoever write the law doesn’t have a clue how software works.” Clearly not! But I also don’t expect them to. But I *do* expect them to ask for help from some of us who do.
Thanks for the post on slashdot: http://yro.slashdot.org/story/13/07/29/1135234/massachusetts-enacts-625-sales-tax-on-prewritten-software-consulting
It is tucked away in the new Transportation Finance Act, St. 2013 c.46, s.48 & 49, and says:
SECTION 48. Section 1 of chapter 64H of the General Laws, as so appearing, is hereby amended by inserting after the definition of “Commissioner” the following definition:-
“Computer system design services”, the planning, consulting or designing of computer systems that integrate computer hardware, software or communication technologies and are provided by a vendor or a third party.
SECTION 49. Said section 1 of said chapter 64H, as so appearing, is hereby further amended by striking out, in lines 232 to 242, inclusive, the definition of “Services” and inserting in place thereof the following definition:-
“Services”, a commodity consisting of activities engaged in by a person for another person for a consideration; provided, however, that the term “services” shall not include activities performed by a person who is not in a regular trade or business offering such person’s services to the public, and shall not include services rendered to a member of an affiliated group, as defined by section 1504 of the Internal Revenue Code, by another member of the same affiliated group that does not sell to the public the type of service provided to its affiliate, or data access, data processing or information management services; and provided further, that the term services shall be limited to the following items: telecommunications services, computer system design services and the modification, integration, enhancement, installation or configuration of standardized software.
Link to the Act: https://malegislature.gov/Laws/SessionLaws/Acts/2013/Chapter46
Thank you kindly for the direct link, Barbara. Do you know (generally) the lag between when a law is enacted and when it shows up on the web? I tried searching for it, and failed – which could definitely be user error – but I would’ve bet money the updates really weren’t there Sunday afternoon when I looked. (And if the updated laws were published to the web immediately, I would have expected the TIR to provide links.) At any rate, thanks for the right info.
I’m from Sweden, we have something called Value Added Tax. We have different VAT for the restaurant industry (12% VAT) and home electronics (25% VAT). Is this new tax like that?
It is in the sense that the customer must pay the tax and not the vendor although the vendor has the primary responsibility to collect the tax. Vat and sales taxes are somewhat alike.
But if I work through a contract agency and they bill the final customer (and I bill them), who pays the tax? If they pay it on what they bill the customer for my time, do I also pay it again for what I bill them? Both bills are for software services — this was my first thought on this issue. A VAT means that each person in the value chain pays somehow.
Anyone have any idea how this is going to work for people who do software contracting?
Kevin Bedell (@kbedell) makes an interesting point about this – do we pay this new sales tax at EVERY STEP IN THE CHAIN (for anyone who’s work fits the definition). Wouldn’t it be nice if the law was clear on this point. There’s prewritten software at every link in the chain.
If I need to make changes to the open source software to enable the customer’s deployment, then it’s not pre-written, right? It’s just ‘parts’, right? The definitions section of the legislation would be required to know this. Also, you might consider whether a corporate office in Nashua would do you any good.
Bill – regarding the just modifying open source — IANAL, but I think any open source library or platform which already exists (WordPress, jQuery, PHP, etc.) is the “prewritten” software that triggers the tax. I hope that either I am wrong or the law is adjusted to make me wrong.
We need to repeal this law like they did in Maryland folks.
I have just put up a website:
notechtax.org
See this YouTube about how it was repealed in Maryland. The leg there did the same thing – passed a law “under the radar”.
If you want to help me organize the repeal of this tax, contact me at:
rfrank@dominionsw.com
Richard – thank you for sharing the video and web site. After watching the video, I think the Massachusetts situation is completely parallel (done quietly, targeting a single group) and may well need exactly the same kind of uprising there. Though in Massachusetts, the Governor was not supporting it – it was passed as an override after his veto – I think it is similar enough to take some inspiration from Maryland. I am waiting to hear some real feedback from Mass state senators and representatives to see if they are appalled / surprised at the consequences / red-faced at making such an awful gaffe — or if it is as they planned / envisioned. That will drive my next move.
I emailed my reps on Friday, and Stan Rosenberg replied. He indicated that this is as planned; to paraphrase, “we need money and other states are doing it too”.
I did some research on other states that are doing this, so I can avoid them if I have to move. I come up with Pennsylvania, Wisconsin, Washington (with a Microsoft loophole of course)… and Missouri is trying. My local paper says Hawaii, New Mexico, South Dakota, but they actually tax all goods/services at a lower rate, like Gov Patrick originally proposed. Maryland and Michigan both enacted ‘tech taxes’ in 2007-8 but repealed them before implementation. According to an article about Maryland, 9 other states had previously tried the same stunt, and most failed, so I’d say the tide is in fact against this crap.
I’m sad that you marked the paragraphs with the analogy of lawyers & pre-written contract forms as “sarcasm”. I’d further extended it to leveraging pre-written laws, or for that matter, precedence. I do not think it’s sarcastic to draw the comparison, I think it’s a perfectly valid argument.
Further, if I were a consumer of services that fall under this tax, I’d likely start looking at vendors who have no in-state presence, as the law should not be enforceable then (interstate commerce clause – although the courts may not back this up, anymore).
It makes me glad I don’t live in MA, but the tax codes in IL aren’t much better.
I completely agree with your objections on a 7-day enactment period. IANAL, either, and the language of the notice (not even the law) is so obtuse, I wouldn’t feel comfortable making any decisions without involving a lawyer.
I feel that sometimes laws like this are nothing more than to drum up demand for lawyers. If there is a greater example of collusion and cronyism, it must be lawyers (and lawmakers).
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A very well-thought-out response to a not-very-well-thought-out piece of legislation. We all need to band together to fight this thing.
Thanks for your efforts and analysis! Obviously just another money grab by the thieves up on Bacon Hill! YES! We ALL need to stay on top of this Massachusetts Nightmare and work for the issue being placed on the ballot for repeal.
John – I think you are on to something – while I’ve never paid attention to legislation on a professional level, seeing my livelihood targeted has really opened my eyes. Clearly it has shaken many thousands of us. Getting it on the ballot for repeal may be needed.
Some news coverage- good thing.
http://www.csnne.com/sportsnetNewEngland/search/v/78879787/mass-it-companies-in-uproar.htm
This 55 year old programmer (moi) thinks we need to get some of the younger, less political folks involved to spread the word.
Btw, if I write firmware, is that covered by this law, I don’t see it mentioned 🙂
This is a great way to kill job growth and make firms leave the state for good!
Call your State Reps right now and ask them to postpone the law until the department. Of revenue issues clearer guidelines. Then stay tuned, we are gong to get this thing repealed.
I’ve contacted both my state rep and state senator. This is the first time I’ve contacted either. So far no response, but I’m hopeful I’ll get something soon. Offered to share my concerns and feedback over coffee. We’ll see. (And even politicians take vacations – might be tough to reach some.)
Just a thought: Unless you’re writing in assembly language, all programming is modification of prewritten software.
Please visit http://repealtheitservicetax.com to help fight this new tax.
Nice web site. I see and the author (Richard) of http://www.notechtax.com/ have discovered each other. Thanks for sharing! I
Finally – an advantage of being an assembly language developer. 😛
I just found this article that is written by an actual lawyer: Computer-System Design/Software Services Now Taxed at 6.25% Effective July 31, 2013 http://masstaxlawyers.wordpress.com/2013/07/29/%EF%BB%BFcomputer-system-designsoftware-services-now-taxed-at-6-25-effective-july-31-2013/
Yes, I’ve read that. I’ve also been in touch with my attorney and also directly with the DOR. It seems the current wording of the bill is so ambiguous that you have to ask the DOR for a ruling on every contract you do- onerous at best. For instance, it seems hat my current project won’t need me to collect sales tax because my client will be selling the product to others and therefore will collect the tax. Ok, so if I do a contract for a client that is going to use the product internally, I’d have to pay sales tax. So, I’ve got to determine what they are going to do with the software, and apply sales tax in some instances, and not others. Ugh. Lets get rid of this thing.
This is crazy complex and so vague. If that lawyer article Jason posted is really how it will be, then the lawyers will *definitely* make out big here. And software service providers and their customers (and the customers’ customers) will all lose big.
They’re yelling, er, taxing “clouds”.
http://charlestown.patch.com/groups/state-news/p/lawmakers-unsure-what-new-tech-tax-will-actually-tax_8a31c2e2
I wondered if this post would have received more attention if I’d used a more sensational title like “Massachusetts Lawmakers Hate on Open Source and the Cloud with Major New Tax” 🙂
It sounds though that if training or knowledge transfer is involved that it would not be subjected to this tax law. Therefore If I develop and implement a solution it can take 10 minutes but 42 hours to train the users on how to use the system 🙂
I only see a negative effect on the commerce in MA.
Ed – you are right – training seems exempt. You are either scary (since you can do so much coding in only 10 minutes) or just being funny. I’ll assume the latter – but it does underscore a point – it is going to be crazy confusing to figure out the nuances of this law.
Thanks Bill for taking the time for this well thought out post- I have forwarded it to my Senators/Representatives and shared with our membership. As a developer myself, and the President of the CC Tech Council we have nothing but questions. Hopefully your post will make to the State House and we see a moratorium until the Tax is clarified and defined.
Hi Paula – I checked out the CC Tech Council and I’m impressed! Also, notably, your council was out ahead of this, writing in opposition before it passed. Thank you for your efforts. I wish more of us had engaged earlier (lack of awareness & our “logical” thinking community’s inability to think such as tax would possibly make any sense).
http://www.cctechcouncil.org/2013/07/cctc-efforts-regarding-the-ma-computer-software-sales-tax/
Re: “we have nothing but questions” – well said – and with nobody to answer them (at least not yet).
Thanks, Bill- it was particular distressing as our new Fiber Network was just completed here on Cape Cod, but now we are not sure businesses would want to locate here due to the tax. We will continue to advocate for our members and hopefully can mobilize the State to at least put the brakes on implementation until they actually know what they are taxiing. If ever on the Cape on a First Friday- join us as my guest!
The North Shore Chamber of Commerce is strongly against the 6.25% Computer Tax on Software Services. Our IT members are up in arms. We are forming a Repeal the Computer Tax “Task Force” to get an initiative petition filed to repeal this tax on the November Ballot.
If you are in the State of Massachusetts and would like to be part of this “Task Force” which will meet in Danvers, please call us at (978) 774-8565 or email me at erik_smith@northshorechamber.org. We are the largest business organization North of Boston — and this affects every Industry in our Chamber.
Erik – I will call you this afternoon or tomorrow.
The DOR just posted the FAQ about what is now taxable for the Computer and Software Services Tax. The link to the pdf is at the top of this page: http://www.mass.gov/dor/utility/recent-tax-changes.html
This is the same info that started this blog post -TIR 13-10. Nothing new. Just complete lack of understanding of software development. They might as well just take out the words “prewritten” and “standardized” and stop pretending there’s some kind of software that would not be taxed under this gibberish.
Btw, does anyone else get a weird feeling from the term “prewritten” software? Sounds like “pre-chewed” gum or something. If I wrote some code yesterday , and then I use it today with some additional code, am I using prewritten code? Don’t be silly, you might say. But that’s what these legislators do: they write words and then they hold you to them. So I’m holding them to their own words.
Thanks for the heads up- nice to see some of our questions answered.
I have a software consulting business, we employ 100 people most in the USA. The on this wording is very broad, it seems to cover all software, worked on my anyone other then an employee. (all 1099 workers) What worries me most, is that it’s a very large tax: 6.25% sales tax, translates to 62.5% of my profit margin. -this is a killer.
I typically compete with companies offshore. They start with lower wages, and my prices are very tight. as clients can develop software anywhere, I can’t imagine I can pass the tax on, and I can’t imagine I can absorb it.
Large companies who do business in MA, will avoid using a firm from MA, for projects outside of the state, for fear of risk from the commonwealth.
If I pay a contractor to work for a client, I think I have to pay it twice once, on my contractor, and a second time, for my client.
This is nuts.
Things have been repealed before:
http://www.mass.gov/dor/businesses/help-and-resources/legal-library/tirs/tirs-by-years/1990-1999-releases/tir-91-5-effect-of-repeal-of-sales-tax-on.html
In this case vendors had to make a good faith effort to give the money back…. !
So we can get this thing repealed. But it’s going to take a lot of effort and a lot of people. Does anyone know a geek squad/best buy service tech? We should try to get them involved given the success of the geeks squad getting their tax overturned in Maryland.
More press coverage
http://www.masslive.com/politics/index.ssf/2013/07/as_software_services_tax_hits.html#incart_river
Are we forgetting Software Maintenance Contracts? (830 CMR 64H.1.3(7)) I assume that under this new regulation, they become fully taxable as well.
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Does anyone know how to get the list of senators & reps who voted for it?
Yep
http://repealtheitservicetax.com/2013/07/31/roll-call/
According to today’s Newburyport Daily News, Senator O’Connor Ives will have office hours (actually hour) in the Amesbury Senior Center tomorrow (2 Aug) from 1-2pm. I intend to be there. I’ll be happy to be joined by anyone else in her district.
The Senator did not show. I left my letter with a staff member. I hope everyone else here is trying to actually meet your Senator & Rep. That’ll work better than yet another email.
I think we should organize a reverse boycott. All IT service companies stop doing work for the Commonwealth! See if they can run the State Govt without us!!!
Bend over, grab your ankles and enjoy the ride.
The FAQ has had major updates. I believe #36 covers a lot of the questions here. I believe it covers my case, but what if new folks come into DoR with the next administration and modify their interpretation. Is the FAQ binding? Can I be assessed a year’s back taxes?
It is hard to consider the FAQs as binding, when they are clearly not the law, when nothing in the FAQs is even tracked by date (and tweaks to prior questions or answers have occurred with each update so far), when every new release seems more arbitrary and contradictory than the last, and most of all, because the FAQ starts by saying, “These FAQs are not public written statements of the Department…” (no joke)
I need to make my invoicing decisions based on the current law, and for now, that appears to be H3535 and its vague definitions. In invoicing the sales tax, I have cited “H3535 (pending any official revisions)”. Of course I am tracking the tax collected, and will return it to the customer if the actual law changes such that I don’t need to remit the tax to the DOR.
(Disclaimer: I am not a lawyer or an accountant, and cannot give tax advice…these are just my impressions as a businessman for 20 years.)
“These FAQs are not public written statements of the Department…” (no joke)”
Oh? I’ll ask my attorney about that. Just because they disclaim it, doesn’t make it so.
This is not a public written comment to a blog.
Says me .
If it walks like a duck, it’s a duck. I think the DOR should stop writing their non public non written statements if they don’t want to claim any credit for them. They should know better.
The Mass High Tech Council is sponsoring an effort to defeat the IT tax. Please consider your support for this:
http://www.mhtc.org/news/actionalert1.asp
The repeal process has started. Please share and impress upon your peers to get involved and sign. This is the official repeal process and will need to make sure that our peers AND customers get involved. I was proud to lend my signature to the process http://www.boston.com/businessupdates/2013/08/06/business-leaders-seek-repeal-new-computer-tax/VmixEfifntycxuqM5UskFI/story.html
I found #38 in the FAQ kind of ironic – They refer the reader back to the TIR. But the TIR is why I’m reading the FAQ – classic bottomless recursion.
Regardless – I’ve contacted my rep to express my displeasure.
The headhunter loophole
http://www.notechtax.com/loophole-2-the-staffing-agency-loophole/
We are a group of volunteers and starting a new scheme in our community.
Your web site provided us with valuable information to work on.
You’ve done an impressive job and our whole community will be grateful to
you.
It’s really very complex in this full of activity life to listen news on Television, therefore
I just use world wide web for that purpose, and take the latest news.