Business owners caught off-guard by new computer services tax
“Most of the attention was on the gas tax, the cigarette tax, and the difference between the Legislature and Gov. Patrick’s proposal,” Anderson said.
Now, Anderson says, companies across Massachusetts are slowly starting to understand that they’re going to have to pay sales taxes on the customization and installation of software.
“We’ve been getting calls every day from companies I’ve never even heard of before who are now going to be under the gun,” Anderson said,
On Thursday, the High Tech Council and the Massachusetts Taxpayers Foundation filed initial paperwork for a state referendum on the tax. The ballot measure would appear in the fall of 2014 if the Legislature fails to act before then.
By Dan Schneider
The Patriot Ledger
Computer and information technology businesses on the South Shore aren’t happy about a new tax on their services – the ones that have heard about it, at least.
Calls to those businesses have been met largely with surprise at the news that some of their services are now subject to the state sales tax of 6.25 percent, a new levy that was included in the state’s recently passed $500 million transportation bill. Many business owners rushed off to speak with their accountants and look up the law, to see what they might be liable for.
Christopher Anderson, president of the Massachusetts High Technology Council, blamed the lack of awareness on media inattention.
“Most of the attention was on the gas tax, the cigarette tax, and the difference between the Legislature and Gov. Patrick’s proposal,” Anderson said.
Now, Anderson says, companies across Massachusetts are slowly starting to understand that they’re going to have to pay sales taxes on the customization and installation of software.
“We’ve been getting calls every day from companies I’ve never even heard of before who are now going to be under the gun,” Anderson said,
On Thursday, the High Tech Council and the Massachusetts Taxpayers Foundation filed initial paperwork for a state referendum on the tax. The ballot measure would appear in the fall of 2014 if the Legislature fails to act before then.
Though legislative leaders estimated application of the 6.25 percent sales tax to this new category of services will generate $161 million in additional revenue, the Massachusetts Taxpayers Foundation and others fear it could climb as high as $500 million a year in new taxes on established businesses and start-ups.
The tax, which went into effect July 31 as a part of the $500 million transportation bill, broadens the scope of the state sales tax to include “software services that modify, enable, or adapt pre-written software.”
What that means, exactly, has been the source of some confusion for computer and IT service providers.
“We’ve had some members raise the question at meetings of what it covers and what it means for them,” said Peter Forman, president of the South Shore Chamber of Commerce. “The most honest answer I can give them is that I don’t know yet.”
Forman said the chamber had not yet decided whether or not to support a ballot initiative to repeal the tax, saying that legislators could still choose to repeal it before the 2014 election.
One business owner who is keenly aware of the new tax was Joe Keegan, the owner of AKA Computer Solutions in Abington. Keegan said he has begun drafting a letter to his clients explaining why the cost of his services is going to increase.
“We may install a server in a number of workstations,” Keegan said. “Some time is spent doing networking, some is spent installing software, and some of it is spent installing software that was previously installed. So now you have to separate that out and a keep a stopwatch on everything you’re doing.”
Keegan sees the new law as an effective double tax on the bread and butter of his business.
“I don’t see it different as installing an alternator (in a car): they tax you for the alternator, but not to install it. I don’t see how software is any different,” Keegan said.