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Live in Massachusetts? What You Need to Know About the “Computer Tax”

Screen Shot 2013-08-08 at 10.17.09 AMThere is a devastating law passed recently in Massachusetts that will not only affect the so-called fat cats of the lucrative IT industry that the legislators were aiming at, but what is very ambiguous and misleading is the very hush-hush trickle-down effect of who it is really going to impact; small businesses such as your local PC repair stores and your one-man web design business. It’s called TIR 13-10, otherwise known as the Computer Tax in Massachusetts and it just enacted on July 31st of this year, much to the amazement of both large companies and small IT companies alike, especially considering not one representative from the technology world was even involved in drafting this measure. The sad part about this is that it will have a very tragic effect on small businesses in the state. And the kicker? Even non-IT businesses such as an accountant may also be liable for this tax just for using software. Insane? We consulted Geek Girl’s own Massachusetts attorney (and huge Geek Girl supporter), Gene Curry, to help us wrap our heads around this one.

 

1.) What is TIR 13-10: the Sales and Use Tax on Computer and Software Services Law?

The tax is a 6.25%  sales and use tax on computer system design, modification, integration, installation and related services. The tax was included in the Massachusetts Transportation Finance Bill, which became law on July 24, 2013 and went into effect on July 31, 2013. The tax applies to software purchased for use in Massachusetts. TIR 13-10 is a technical information release issued by the Massachusetts Department of Revenue to provide guidance on the tax, available at: http://www.mass.gov/dor/businesses/help-and-resources/legal-library/tirs/tirs-by-years/2013-releases/tir-13-10.html. The Department also has a list of frequently asked questions, available at: http://www.mass.gov/dor/docs/dor/law-changes/faqss-computer-software-2013.pdf. The Department has been adding questions to the FAQs on a regular basis, so it is a good idea to keep checking the list for additional guidance.

2.) We hear that this was created as a backlash to all the “fat cats” in the IT industry not paying their share of sales and use tax on computer hardware, but doesn’t this also hurt small businesses and the ma and pa shops who are selling to communities?

You are correct. According to WBUR, Senator Stephen Brewer, who chairs the Senate Ways and Means Committee, has defended the tax saying it was appropriate to tax “a very, very lucrative industry in the Commonwealth”. I disagree. This is not a tax on the IT industry. It is a tax on everyone who purchases IT services, which is to say everyone. For example, a restaurant owner who purchased customized point of sale software will be taxed as will any small business owner who hires an IT business to install or configure software. I also suspect that many of my friends in the IT industry would not agree that it is “very, very lucrative”.

3) Ah, so, it is true that not only IT companies will be impacted, but also Any business or consumer who use any IT services will be forced to pay an additional 6.25% tax on top of their service charge, IT service providers, including software developers and Website designers, and Other service providers, (like accountants, or security camera vendors) who have nothing to do with IT?

As I said above, this is a tax on any one in Massachusetts that purchases or uses IT services. The tax does impose burdens on IT businesses that will be required to register with the Department, collect taxes, and determine which services are subject to the tax.

4.) Who came up with this legislation? And why do you think they targeted ALL IT companies, not just ones making over say a million dollars annually?

The source of the legislation is not clear. The IT community was not consulted in drafting the legislation, which is obvious to anyone who has read the legislation.

5.) What can Massachusetts businesses do to repeal this or make their voices heard?

The Cape Cod Technology Council opposed the tax and communicated its opposition to the tax to the Cape’s legislative delegation. There is a broad coalition forming against the tax including the Massachusetts Taxpayers Foundation, the North Shore Chamber of Commerce, the Cape Cod Technology Council, the Massachusetts High Technology Council, ¬†and other organizations. On August 7, 2013, a citizens petition was filed to place a referendum on the ballot in 2014 to repeal the tax. Businesses that oppose the tax can support the referendum effort. In the meantime, businesses can contact the state representatives and senators to express their experiences with the tax or their opposition to the tax. In addition, the Massachusetts Department of Revenue is seeking comments on the legislation, which can be provided at: rulesandregs@dor.state.ma.us.

6.) Is this happening anywhere else in the country or is this just a Massachusetts phenomena for the moment?

According to the Massachusetts Taxpayers Foundation, only four other states have comparable taxes and they have lower tax rates.

7.) Do you anticipate this spreading to other states?

Hard to say. On the one hand, every state is looking for additional revenue. On the other, there are states offering financial incentives to lure technology businesses.

8.) Government officials said it should yield $160 million annually in tax revenues but business leaders contend the tax is so broadly written it will cost them some $500 million a year. Both are such polarizing assertions. Which one is more likely? (Taken from Boston Globe article)

Because of the ambiguous way the legislation is drafted, I would expect the revenues to be closer to the higher projection.

9.) Do you think this will be repealed?

I would anticipate that, as the impact of the tax is felt, the momentum will grow for repeal. I am cautiously optimistic that it will be repealed.

10.) Anything else you would like to add?

FYI here is a useful site: http://repealtheitservicetax.com/

And thank you for the opportunity to comment.

 

No, thank YOU, Gene….

-1Eugene R. Curry is the principal of the Law Office of Eugene R. Curry, located in Barnstable, Massachusetts. The firm provides business and corporate solutions for profit and non-profit organizations, including intellectual property, antitrust and trade regulation, and estate planning and administration services, with particular emphasis on the needs of clients operating in the digital environment. In addition to representing technology clients, he represents traditional Cape Cod businesses including agriculture, fishing, and manufacturing businesses. His clients range from start-ups to multi-national corporations. He serves as General Counsel to the Cape Cod Technology Council and has served as a coach for Start-Up Weekend Cape Cod.

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