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10% Tax On Custom Software, $100M Tax Cut For Microsoft
reifman writes "Last week, the Washington State House of Representatives passed a bill which would impose a 10% tax on custom software while all but eliminating a $100 million yearly tax obligation that some say Microsoft is wrongfully avoiding by routing large chunks of business through an office in Nevada. 'I believe we've got an issue of justice and fairness here,' said Rep. Maralyn Chase. 'Most of the custom software purveyors are small businesses. It's a question for me of how we fairly distribute the tax burden.' 'It means that a 5 person team of entrepreneurs building a cool custom software suite, or a group of system integrators, would face a 10% tax on their services while keeping the exact same project in-house would not be taxed,' wrote Rep. Reuven Carlyle. 'It would be a massive blow to the entrepreneurial community in our state.' The bill won't become law until the House and Senate work out how best to raise another $300 million in taxes. A sales tax increase on consumers is also being considered."
This is clearly is bad for the individual geek who makes their living selling simple custom programs that do only what the user wants/needs and nothing that they don't, unlike Microsoft omnibus packages. It's a case of government by large corporation over the individual if this passes.
I propose a 20% tax on people who pass stupid laws!
Andrew Stack would be upset at having to pay any taxes. He was also a loony. The selective 10% on custom software is a supremely stupid thing, but invoking the name of an anti-government crackpot isn't helpful.
Just so you know, the state of Michigan tried a 3% tax on gross receipts on physicians... It got shot down in the state senate after the house passed it. They're trying it again in by hiding it in a new budget bill.
I bring this up because it's in the same idea of trying to find new tax sources, that affect a small population to make it not unpopular... And it helps if that particular group is perceived to be "well off." It's poor policy to make one profession bear the burden of the masses (IMHO). It's a great way to try to drive business out of an area. It's also a great way to pass the burden onto the consumer without and claim that taxes have been raised.
Actually, that's the ticket. If by custom, they mean written against a customers specifications, then it's pretty shitty. If by custom, they mean for one and only one client, then it should be pretty easy to get around. Imagine this. Company A hires you to build a custom piece of software. Once you're done, you just need to make it available for purchase to other companies. Then it's strictly not "custom" anymore, since more than one company can use it. So it all boils down to their definition of custom...
This is nothing more than a prime example of lobbyists in action. How else could you explain that the first "community" to do this contains one of the largest "non-custom" computer engineering firms in the country? I wonder what the state congressmen (or whatever they are called up there) got in return for this sweet deal... Money? Drugs? Sex? Free Computers?
If a man isn't willing to take some risk for his opinions, either his opinions are no good or he's no good
At first I thought ... "that doesn't affect me..."
This is a very common attitude that is degrading our lives in all areas in my opinion. To me, it's like playing chess and looking just one move ahead.
Sales tax doesn't usually apply to custom software, where 'custom software' means you can't just buy it on a shelf or download it. My company sells custom software that runs youth sports leagues.
We pay income tax on all our revenue, of course, but we don't have to collect sales tax so long as it's a 'service' -- meaning no 'click here to download our software.' So custom software is not currently taxed in most states.
Washington state also doesn't have an income tax at all.
Depending on your current state and existing tax burden, I could see paying a fair tax for something like this, but not ten percent. Custom software is already pretty expensive (possibly one of the reasons it's not currently taxed) and because it doesn't have fixed price, it's tough to track for tax purposes -- I could say 'well, our software costs a hundred bucks, but my consulting fees to set it up and maintain it for you are $10,000 a year' since that's a professional fee/service. Sort of how attorneys work - you're paying for their expertise, not really for a 'product.'
I was looking over the proposed law and found some interesting information on this.
First, I'm not a lawyer or politician. Be ye forewarned.
Page 87 makes it seem that this isn't a new tax, but a removal of an exemption. From the document:
(7)(a) The term also includes the sale of or charge made for custom software and the customization of prewritten computer software to a consumer, regardless of the method of delivery to the consumer. (b) The term also includes the charge made to consumers for the right to access and use custom software and customized prewritten computer software, where possession of the software is maintained by the seller or a third party.
In other words, the following are taxable:
1) The sale of "custom software"
2) The amount paid to customize software that's already written
3) Licensing fees to access custom software
Back to the original question in this thread, it seems that FOSS could fall under 2) in my list -- developers are often paid to add specific features (thereby customizing the software) by individual or companies. As nothing is charged for the sale and licensing of FOSS (generally), 1 and 3 woudn't apply.
I will say, however, that "custom software" is not defined in said document.
You don't have to assume any such thing. If you want, you can actually check the data. It's available. The truth of the matter is that poor people spend a higher proportion of their income on taxable goods than wealthy people do. Keep in mind that "necessities" are exempt from sales tax in all, or almost all, states... this includes food.
Keep in mind that it's probalbe that you paid more in tax than your poor friends did... but as a percentage of your income? Not as likely... I think you're unclear on what a regressive tax is. It means that as a proportion of income, people with lower income pay more than those with higher income. So if you make $100,000 a year and pay out $1000 in sales tax (1 %), but they make $25,000 a year and pay out $300 (1.2%) in sales tax, it's an example of the regressive nature of sales tax. The math gets even worse for the poor when you compare disposable income, rather than total income.
Yes, you just gave an example of how a progressive tax schedule could be implemented. And while I'm not the person you responded to, I do believe that a progressive tax is ideal.
"Trolls they were, but filled with the evil will of their master: a fell race..." -- J.R.R. Tolkien on Olog-hai