I object to the new Massachusetts Tax on Software Services

I object to the new “Sales and Use Tax on Computer and Software Services” (“the Tax”) which was passed as part of the Transportation Act.

I don’t mind paying higher taxes if the Commonwealth needs more money to fund public services. I support more tax dollars for public transportation.

However; I believe that taxes should be levied in a way that is fair. I also believe that the collection of taxes should be as efficient as possible, and that the collection of taxes should not cause undue burden on the people and companies of the Commonwealth.

The Tax is not a fair tax – why are ‘Computer system design services’ singled out for sales/use tax?

The Tax wil be complicated and expensive to comply with. It is administratively very complicated because the definition is complex and vaguely worded, and has a number of exceptions. It is complicated to collect because it is a state sales tax.

The Tax makes doing business more complicated for all IT businesses in the Commonwealth. The Tax will particularly harm the small businesses in our Commonwealth. That includes startups and aspiring entrepreneurs – the Tax will reduce our competitiveness. As such, the Tax will cause our Commonwealth long-term harm.

The Tax was passed under the radar, in the middle of the summer, and goes into effect 7 days (!) after the Transportation Act was passed. This is unreasonable.

The Tax needs to be repealed.

If you live or work in Massachusetts, please contact your State Representative and State Senator. The Department of Revenue is also inviting comments or suggestions at rulesandregs@dor.state.ma.us.

1. The Tax is not fair.

Apart from telecommunication services, no other services are subject to sales/use tax in Massachusetts. Why are “Computer system design services” singled out?

2. The wording of the Tax is vague and unclear.

From TIR 13-10:

“Pursuant to newly-enacted legislation, An Act Relative to Transportation
Finance, St. 2013, c. 46 (“the Act”), which became law on July 24, 2013,
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.”

This wording makes no sense. Almost all software is ‘prewritten’. It is industry best practice to use existing software where it exists, and modify it to suit where necessary.

Taken literally, the Tax applies to practically every action of every IT professional. We are always modifying, integrating, enhancing, installing or configuring software – be it software we wrote ourselves or something that was acquired.

The Tax would require us to keep detailed accounting records of how much time was spent on software that was ‘prewritten’ vs. software that was written from scratch. Of course, almost no software is written entirely from scratch, most software builds on ‘prewritten’ components and libraries.

Doing this kind of accounting is absurd – it would be a ridiculous waste of time.

In real life – particularly so for free and open source software – there is no clear line between software that was ‘prewritten’ and software that was not. It does not make sense to create that artificial distinction in the Tax – it makes everything very complicated.

TIR 13-10 further defines:

“’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.”

This definition does not help.

What does this mean? What is included? What is not? What is a ‘communication technology’? Does there always need to be a hardware sale involved?

How does it apply to cloud computing services?

How does it apply to consulting services on free and open source software?

3. the Tax is complicated and unworkable.

The Tax suddenly subjects a whole class of small companies – startups and freelancers – to a vague and complicated tax rule. Now every IT freelancer will likely need to register with the Commonwealth to collect state sales tax.

We’ll need to hire lawyers and accountants to make sure we comply with this complicated, vaguely worded and unclear rule. This will suck up resources that
would be better spent growing our businesses and innovating.

This is an unreasonable burden that will hinder entrepreneurs and put a brake on innovation in the Commonwealth.

4. the Tax is unreasonable

The Tax was passed under the radar, in the middle of the summer, as part of the Transportation Act. It goes into effect tomorrow, July 31st 2013, 7 days after the Transportation Act was passed. This is unreasonable.

The Tax needs to be repealed.

If you live or work in Massachusetts, please contact your State Representative and State Senator. The Department of Revenue is also inviting comments or suggestions at rulesandregs@dor.state.ma.us.