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Illinois Considers Taxing Custom Software
Foobar_Zen writes "Illinois Governor Rod Blagojevich is proposing to tax custom software; he is hoping to generate $64 million.
You can read the story at burrwolff.com.
I am wondering if there any other states that currently tax for custom software? How is this going to affect Illinois? What does this do to independent application and software developers?" And what about software that adds value but itself is available without charge?
I doubt this could ever go through, since the definition of 'custom software' is too vague. Would this tax me if i installed a copy of ms office with custom options? What about 3rd party plugins (paid for by me, or free)? What about rolling my own linux kernel? Or even making my own distro. And as for little programmer shops that would ultimately feel the heat, does this mean that when they package up their software and put it up on a shelf it's no longer "Custom software"? Bad idea, bad definition, bad enforceability, bad tax revenue idea.
Will wank off Linus Torvalds for fame.
Not too hard to figure out - pay $10 million for a custom system in Chicago, or pay $9.5 million for the same system in Gary, Indiana.
Yay! Just what the world needs, more archane, archaic taxation systems that mean that you have to employ people just so you can be sure that the government is taking the right amount of money from you.
And if you pay too much - forget it, you'll never see that money again. If you pay too little, they'll take you to court and add huge fines.
You can't win, you can't break even, and you can't even quit the damn game.
'Don't worry' said the trees when they saw the axe coming, 'The handle is one of us.'
The relevant section reads:
1. Initiate sales tax on custom software: The governor estimates a business tax increase of $64 million by eliminating the distinction between canned software sold at retail (subject to sales tax), custom software (subject to service occupation tax on the value of tangible personal property transferred with the software) and software licensed or leased by the developer (currently not taxed). The Governor's proposal would either repeal the Department of Revenue regulation that distinguishes between a sale and a license of software or create an entirely new tax on revenues from software licensing.
If I were a company director, the first reaction would be to see if open source software exists to do the same job, and if it were cheaper to hire/contract to write inhouse software. Looks like this would hurt contractors/small companies than anything else.
Who will define it? The lawmakers and their sponsors. Once the law is in place, lawyers and judges will have their pop at anything which isn't 100% crystal clear.
What exactly does "software" mean and who gets to define it? If I send someone an 8 line javascript as an email attachment how much is the tax on that? How about taxing other forms of written communication; emails, webboards and snailmail letters. Why stop there, you could tax vocal communication too with discounts for non words and gurgling noises. I thought patents were an unofficial tax on software anyway?
Freedumb of speech is here, tax the planet.
Writing software is a service. So is legal work, plumbing, lawn mowing, ... If they're going to tax custom software, then _all_ services should be taxed.
Well the trick is to find a Programmer who will do all this custom software development for free? Custom Software development usually always paid. Because with "Free" Custom Software development, first you will need to find a programmer willing to do it for free, which will be hard because a lot of custom software development is usually quite boring and the programmer will not get much credit outside the company that is using it. But say you did find someone to develop it for you for free the next trick is keeping them motivated to get it done,"its free so they can take as long as they want its not hurting them any", plus if the person is doing it for free then they probably have a paying job or are in school, the slim possibility of being independently wealthy. But in most cases the job will be worked on part time at best. So by the time the application gets done it will be a long time. and probably a lot of loss productivity.
Also most Custom Software doesn't bother with any sort of licensing basically as the programmer makes the code and sends it to the customer and they pay him for his hours the code is their they can do whatever they want with it.
If something is so important that you feel the need to post it on the internet... It probably isn't that important.
Most countries that have a sales tax also have a tax on services. In Europe its called VAT and in Oz/NZ its called General Sales Tax (GST). If they start this, I expect it won't be long before every service is taxed just like current sales tax which sort of makes sense in a service economey. Of course the better solution would be get better value for our tax money.
Also most Custom Software doesn't bother with any sort of licensing
That's because it's the very definition of a work for hire - the programmer is hired specifically to create that work on behalf of their employer. At the end of it, I think everyone would expect to own what they had paid to be created.
It's official. Most of you are morons.
Sounds typical for the Midwestern states.
There are still a significant number of politicians that want to see the information economy go away. Indiana is even worse in this regard. They have put tons of money in a dumb attempt to bring manufacturing jobs back and they leave in little things that give companies that could make real cash and create decent jobs major headaches.
If you are going to give out corporate welfare, at least give it out to people that could actually HELP you... jeesh.
Why don't you embrace your slashbotness instead of living in a dreamworld?
The problem is that the state is running out of money - they propose to fix it by increasing taxes, something that they can do since they are effectivly a monopoly in the geographic area.
If I have a budget problem, I might try to charge my customers more; but I will probably cut back on what I do or choose cheaper suppliers.
How much money would the state save if it moved all its office systems from Microsoft to Linux ?
"he is hoping to generate $64 million"
Generate?
There is no "generate" about it. I think the phrase he's searching for is: "hoping to take $64 million"
It appears to me that all the gov is doing is trying to close some loopholes, not some evil scheme to take over the world as the post and most responses seem to believe. Currently the state taxes retail software (duh), they tax consultants when they write software (duh), but some people are bucking the system and not charging hourly consulting rates, only a license fee, and that is a tax loophole at the moment. So, unless you are against all taxes (and who isnt?) there is really no earth shattering meaning to this proposal.
Move along, nothing to see here.
Interesting news must be getting scarce.
slashdot troll = you make a compelling argument I do not like the implications of.
Understand the context, though: Illinois has a young, Kennedy-esque governor who claims to be a populist and is working "for the people." He has steadfastly refused to raise general sales taxes or income taxes and is instead turning toward businesses to blanace a 1.7 billion dollar state deficit.
This governor does not work in the state capital and instead spends all his time in Chicago because "he's got a family to raise, and he can't raise it in Springfield" (or something to that effect). So he spends lots of moola jetting back and forth.
The theory with Blagojevich is that he's positioning himself for a presidential bid in 2008 and is loathe to contradict his "populist roots" by imposing a tax on the "backs of the hard working men and women of Illinois."
In a sense, yeah, that's good. I can appreciate that. But the result of his fervent populism is a state government that's only a couple weeks away from a legislative break and is facing enormous pressure within the next two weeks to balance the budget and erase a 1.7 billion -- billion! -- dollar deficit from the state rolls.
He's in a tough spot, and because he's a union-guy and a guy's guy, Governor Sunshine has backed himself into a corner. The *only* things left are (a) massive taxes on businesses (bad for the state because we have lots of other states close by that would benefit from a business exodus from Illinois) or (b) gambling.
He's an odd bird, Blagojevich, and he's scraping -- literally, with a little plastic spatula -- the bottom of every barrel across the state to raise money.
Do I agree with what he's doing?
I'm not sure. I think Illinois government is in complete *disarray* -- lots of agencies are understaffed, for example -- but so long as he doesn't raise taxes on Ma and Pa, he's cool.
Welcome to American politics, I guess.
*shrug*
So if I write Macro in Excel will that be taxed too??!! And what about my .procmail script which dumps things from some people into a Folder. IS that also taxable? What is "Custom Software"??
The dangers of excessive individualism are nothing compared to the oppressiveness of excessive collectivism