Business groups launch ballot campaign to repeal Massachusetts software services tax

A coalition of Massachusetts business leaders is launching a ballot campaign asking voters to repeal a new tax on software services.

“We’re getting multiple calls every day from companies … (who are) really concerned about their ability to retain the level of workers they have,” said Christopher Anderson, president of the Massachusetts High Technology Council, which is co-organizing the initiative. “The competition is from residents in states that want our jobs and our companies and don’t impose this kind of tax on innovative services.”

A transportation funding bill passed last month by the Legislature increased taxes on gas and cigarettes and also extended the state’s 6.25 percent sales tax to information technology services that involve customizing prewritten software.

As The Republican/MassLive.com reported, the tax confused and angered professionals who work in the software industry. They said the law is unclear, broad, unfairly targets a specific industry and could make businesses around the state less competitive.

Lawmakers who crafted the tax say the law is meant to be narrowly targeted and will bring in $161 million a year. If the amount raised exceeds that, they will revise the law. The Massachusetts Taxpayer Foundation estimates that the law will raise $500 million annually.

The Massachusetts High Technology Council and the Massachusetts Taxpayer Foundation are organizing the ballot campaign and have hired Joe Baerlein, president of the Boston communications firm Rasky Baerlein Strategic Communications. Baerlein has worked on numerous other ballot campaigns, including a successful effort in 2012 to defeat a question legalizing physician assisted suicide.

Anderson said activists will still continue to work with legislators in the hope that they will repeal or change the law before 2014. But he said the group wants to preserve its option to put a question on the ballot in November 2014. Wednesday is the deadline for ballot questions to be submitted to the attorney general’s office. “We’re hoping members of legislative leadership are open to deeper appreciation for the anti-competitive impact this is placing Massachusetts in,” Anderson said.

Michael Widmer, president of the Massachusetts Taxpayer Association, in an interview last week called the tax “the most far-reaching tax on software services in the nation.” “This will affect virtually any industry in Massachusetts and basically undercut our innovation economy,” Widmer said.

Twenty business owners or advocates signed the petition, including Laura Sen, president and CEO of BJ’s, and Ron Sargent, president and CEO of Staples.

Also among the signatories is Jeffrey Ciuffreda, president of the Affiliated Chambers of Commerce of Greater Springfield. Ciuffreda said the chamber was told originally that the tax would be narrowly tailored to raise $161 million. He joined the ballot campaign after seeing the Massachusetts Taxpayer Foundation’s research indicating that the law would raise $500 million and hurt all segments of the information technology industry. Ciuffreda said the information technology sector “is one of the strongest drivers of the Massachusetts economy and is also very important to us in Western Massachusetts.”

Ciuffreda said the tax could affect businesses ranging from banks that modify online banking software to hospitals creating systems for electronic medical records. He worries about the impact on the online gaming industry in Northampton and on research and development at a new green computing center in Holyoke.

He worries that computer-related businesses will move out of state. “It’s not as if you’re trying to move a brick building. It’s literally moving a person and a computer across a state line, and services would not be taxable there,” Ciuffreda said.

Some question whether a ballot campaign is the best way to address the tax. Scott Foster, a business attorney in Springfield who co-founded a group that mentors start-up companies, said businesses right now are “still in the confusion phase” over how to apply the new tax. He said a ballot campaign “is perhaps the most ineffective way of approaching the problem I could think of.” By November 2014, he said, the tax will already be in place and will have had an effect on the economy and businesses.

Foster said businesses need to find a way to delay implementation of the tax, to give businesses more time to understand it and learn to implement it, once the rules are written. The tax went into effect July 31, a week after the law was passed. The state Department of Revenue issued technical guidelines for complying with the law, but final rules will not be available until October.

“It’s mind-boggling to me any person with a scintilla of business sense thinks that’s a good idea,” Foster said.

Foster said he has been talking with clients about the possibility of filing a lawsuit against the state, seeking an injunction against the tax on the grounds that it is too vague and unclear to implement.

Bryan Sullo, co-owner of Clocktower Technology Services in Franklin, signed the petition because he wants legislators to act. He thinks a ballot question “is probably our last best course of action if we can’t get some action in the Legislature to postpone or repeal this.”

“Honestly, by the time this comes to the ballot in November 2014, the damage will be done,” Sullo said. “The hope is the legislators will look at this as their time for reelection comes up and decide they don’t want a whole bunch of business owners who typically vote for fiscal conservatives to show up on Election Day … and hopefully decide long before it comes to the ballot they will make some changes to get this off the books.”

State Sen. Stephen Brewer, a Barre Democrat and chairman of the Senate Committee on Ways and Means, said in an interview last week that the tax was a “very modest effort” targeting specific services, which was necessary to fund the state’s transportation needs. “It was our assessment that was a reasonable, blended approach for a statewide solution,” Brewer said.

Brewer and Rep. Brian Dempsey, a Haverhill Democrat and chairman of the House Committee on Ways and Means, wrote to the Department of Revenue that the tax should be applied to a narrow group of vendors, and should the impact on revenue or jobs be greater than anticipated, “We will not hesitate to revisit these changes.”

If the attorney general certifies the language on the petition, supporters must get nearly 70,000 signatures. The Legislature will then vote whether to adopt the ballot initiative. Supporters must then get another approximately 12,000 signatures for the measure to face a statewide referendum.