Massachusetts-based technology companies are uniting against a new state sales tax levied on computer software services, claiming this “tech tax” is too vague, is a threat to jobs, and gives other states an unfair competitive advantage.
The tech tax expands the state’s 6.25 percent sales tax to “computer and software services.” Not only is it unclear what exactly that applies to, people aren’t even sure how much money the tax is expected to raise. The state estimates $160 million a year, according to Mass Live. Opponents, like Michael Widmer of the Massachusetts Taxpayers Foundation, have estimated it could raise as much as $500 million a year and called it “a grave danger to the future of the innovation economy.”
Scott W. Foster, a partner at the Bulkley, Richardson & Gelinas law firm in Springfield, Mass., has spearheaded the lawsuit, saying the tech tax is too vague to hold up in court. Foster is also using his tech startup nonprofit, Valley Venture Mentors, to educate tech CEOs about the tax.
The Massachusetts legislature has also introduced a bill aimed at rescinding the tech tax, but it won’t make it on a ballot before November 2014. There are also rumors that neighboring states are campaigning against such a ballot initiative in order to protect the tax and the advantage its giving them.
Supporters of the tech tax say it “modernizes the tax code,” and compensates for a state-wide increase in technology. If a company creates a brand new product, it is not taxable. If the product uses an already existing program it is taxable.
Opponents of the tech tax say this language makes it very difficult to interpret the tax code, and nearly every computer program borrows code from something else.
“We are in an industry that doesn’t like to reinvent the wheel,” Rachel Frank, a strategist at Gravity Switch, told Mass Live. “For example, if we install Wordpress and we check a dialogue box, is that ‘configuration or is it not?’”
Tech companies in Massachusetts were supposed to start collecting the tech tax in August, but many say they still don't understand how it works. A full set of guidelines for the tax won't be completed until October.