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Business leaders fight technology tax in Mass.

Aug 7, 2013Boston Globe, Council in the News

By Michael B. Farrell

Business leaders fight technology tax in Mass.

Seek ballot item to end state’s levy; say computer sector mistreated

A coalition of business leaders from some of Massachusetts’ biggest companies, including Staples Inc., BJ’s Wholesale Club Inc., and Boston Scientific Corp., plans to ask voters to repeal the newly imposed sales tax on computer software services.

The political action is an abrupt turn for a business community caught off guard by the new tax. Many executives were unaware the tax had been working its way through the Legislature for months.

Now, executives of established corporations are joining with entrepreneurs from upstart technology firms to argue the new tax unfairly targets one industry and threatens the state’s economic growth.

“It’s a frightening tax because of the precedent to single out technology-related companies for a source of revenue,” said Pete Nicholas, chairman of Natick’s Boston Scientific and a leader of the new ballot initiative. “It really acts against the impulses of people who want to grow and flourish in the state.”

About 20 executives, along with the Massachusetts Taxpayers Foundation, the Massachusetts High Technology Council, and other groups, will petition the state Thursday to begin putting the repeal on the 2014 ballot.

That timing could make the tax a factor in the upcoming governor’s race.

The legislation applies the state’s 6.25 percent sales tax to a wide variety of computer services, such as modifying software or building websites. State officials expect the tax would yield some $160 million annually.

The businesses have hired the Boston public relations and lobbying firm Rasky Baerlein Strategic Communications to run the advocacy campaign for the next 15 months and help collect the signatures needed to put the question to voters.

The rear-guard action is forcing tech executives to confront an unflattering reality about their role in Massachusetts political life: that many simply ignore what’s going on on Beacon Hill, to their great expense.

“I’m not in tune with what’s happening in the Legislature,” acknowledged Joshua Opper, managing partner of a small Newton information technology consulting firm, Utility Datacenter.

Conversely, Opper said that judging by how the tax was written, lawmakers aren’t in tune with how the information technology industry works, either. “It’s so behind the times that you might as well just throw it out and start over,” he said.

Another bitter lesson, these business people said, is that politicians are all too willing to pay the tech industry lip service when it boosts their own credentials.

“There isn’t a speech that any politician gives in which they don’t mention the innovation economy,” said Michael Widmer, president of the Massachusetts Taxpayers Foundation, “and the fact that we are placing the most sweeping tax on the innovation economy is stunning.”

The Patrick administration, which originally pushed the computer tax with the Legislature as part of the governor’s transportation bill, noted its proceeds will be used to repair and upgrade the state’s roads and transportation systems — investments that will benefit the business community.

“The governor supported this plan to invest in the future of the Commonwealth — and this particular avenue for raising revenue — because the people and the businesses of the Commonwealth want and deserve a reliable, modern transportation system,” his aides said in a statement.

As defined by the Legislature, computer services to be taxed include “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.”

But business leaders complain the language of the law is too vague and could apply to any number of technology services that many different businesses regularly buy and sell. They predict it will affect so many routine computer expenses that the tax haul will amount to some $500 million a year.

Indeed, in response to the initial uproar and confusion over the tax, the Massachusetts Department of Revenue has augmented its initial guidance with 44 additional explanations on how it would be applied.

One of the Legislature’s top tax authorities, Senator Stephen Brewer of Barre, the Democratic chairman of the Senate Committee on Ways and Means, said Massachusetts has to fund transportation upgrades somehow, and the computer tax is not out of line with how other states tax the industry.

“I would be curious to know where the alternatives are,” Brewer said. “Where do they want to get revenue to improve transportation?”

However, Brewer said that if the tax ends up costing businesses more than $160 million, he and other legislators would instruct the state revenue department to narrow the scope of collections.

Increasingly, the Massachusetts High Technology Council is stepping up to create, execute, and lead critical statewide competitiveness strategies. Fostering a vision for our innovation economy under the MassVision2050 banner, the Council solidifies its position as a thought leader providing valuable insights to navigate emerging technologies, facilitates long-term planning, and reinforces the Council's commitment to excellence and action in the evolving Massachusetts tech-driven economy.

To learn more, contact Council President Chris Anderson.