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Massachusetts May Try To Tax the Cloud

Posted by timothy on from the if-it-moves-tax-it-if-it's-ephemeral-tax-it dept.

CowboyRobot writes "A proposed tax in Massachusetts may affect software services and Web design and hosting. If approved, the state estimates the tax may bring in a quarter billion dollars in 2014 by expanding its tax on 'canned software' to include some elements of cloud computing. The tax would cover custom-designed software and services based in the cloud. "Custom" software includes the design of Web sites, so the cost to local businesses of a new Web site would increase by 4.5% on contracts to design the site, write Java, PHP or other custom code. The cost of site hosting and bandwidth would also be taxed."

10 of 172 comments (clear)

  1. Color me shocked... by geminidomino · · Score: 2, Insightful

    It's Mass, FFS. They'd try to tax air if they thought they could get away with it.

    1. Re:Color me shocked... by rudy_wayne · · Score: 3, Insightful

      the state estimates the tax may bring in a quarter billion dollars in 2014

      These estimates are always way off. And even *IF* it did bring in that much money, the money would simply be wasted on all sorts of uneccessary bullshit and the state will be no better off than they were before.

    2. Re:Color me shocked... by Skapare · · Score: 2, Insightful

      Sucking a quarter billion dollars from the economic recovery.

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      now we need to go OSS in diesel cars
    3. Re:Color me shocked... by bill_mcgonigle · · Score: 2, Insightful

      Sucking a quarter billion dollars from the economic recovery.

      Don'cha know, all economic growth comes through government spending. If you believe that, I've got a $125K job for you collecting tolls on the Turnpike.

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      My God, it's Full of Source!
      OUTSIDE_IP=$(dig +short my.ip @outsideip.net)
    4. Re:Color me shocked... by Lithdren · · Score: 3, Insightful

      Err...Yes, data centers use eletricity. And they pay for it, just like everyone else does. And that includes taxes on said energy. As for parking lots and air...well the land is taxed so there's your parking lot, and air...umm...well we do charge companies taxes for pollution and tax incentives to cut pollution, but nobody actually 'pays' for air.

      Not very clear how Roads and Healthcare play into an internet/software tax, but these are also paid for, by things like gas taxes and however you choose to pay for healthcare currently.

      Why is there always someone like YOU in every crowd who feels that everyone else should pay for things? If gas taxes are not covering the costs of road repair for example...we should be taxing more for it. You dont just invent stuff to tax to pay for other things, unless you're an idiot. Thease places give back in the same way as every other company gives back, through taxes and employment. As usual, the idiots in goverment (and idiots like you who vote for them from the looks of it) are just going to drive companies to other places, negating any tax benifits they would have gained, AND losing what they're already getting.

      Herp derp.

  2. Opposite effect by roman_mir · · Score: 4, Insightful

    If approved, the state estimates the tax may bring in a quarter billion dollars in 2014

    - right, because taxing something creates more of it rather than reduces its amount.

    FTFA

    Most of the tax would be levied against integrators, developers and other companies producing custom software. It's not clear exactly what services would be covered by the tax, but if hosting, bandwidth, storage, security and other services are taxed, presumably the tax would affect any service based away from the premises.

    Here is what will happen: Massachusetts will lose some of the integrator business, which will be provided from somewhere else. It's not clear what exactly they are proposing to tax of-course, they have no idea what they are talking about, but they sure as hell want to tax something there and that means raising costs and reducing business activity, whatever they do, they should expect less business, not more. I would be surprised if they managed to collect any taxes from this, they may end up with less tax dollars overall if/once they implement this idea.

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    You can't handle the truth.
  3. Harmonising the tax standard ... by golodh · · Score: 3, Insightful
    All civilised countries in the world have a tax known in various forms as 'value-added tax' (or VAT). The US has sales tax. See e.g. http://en.wikipedia.org/wiki/Value_added_tax The difference between sales tax and VAT is that VAT is levied through out the supply chain but paid only by the end customer as firms are obliged to charge VAT when they sell things, but get VAT tax credits when they purchase.

    What Massachusetts is doing here is to bring its tax code more in line with de-facto international standard. Something that will happen anyway over time.

    And no, there are no discernible deleterious effects of VAT, and it doesn't affect international competitiveness much (China,India, Mexico, Canada and the EU all levy VAT). So it may be delayed for awhile, but given the current state of federal finances probably not for more than a few years or so.

  4. Re:Other than revenue, what's the motivation? by tgd · · Score: 3, Insightful

    I am a bit confused since "custom" software may be developed outside of the boundaries of Massachusetts and its utilization, while using a network in the state would already be covered. Network Connectivity is already has taxes associated with it. Businesses clearly pay taxes in the state as well as do consumers. Software companies who write software working in the state pay taxes as well.

    This looks more like an starting effort to obtain a franchise or privilege tax for using the Internet not a sales tax of any kind.

    I believe MA, like CA, only charges sales tax on software physically delivered into the state. Cloud hosted software, even if its "projected" via something like Citrix or remote desktop, doesn't. (So if you buy a $1m ERP system and install it in your business, you pay sales tax on it -- but if you buy $1m ERP system and its hosted out of state and you are using a published application or web browser to access it, you don't.)

    And that can be a lot of revenue, especially given the number of very high tech pharma companies and the like. MA wants its sales tax on that $40m genetic sequence data mining system.

  5. Re:Other than revenue, what's the motivation? by Grishnakh · · Score: 4, Insightful

    This is a rather stupid comment: there's no way to avoid doing social engineering with taxes. Whatever you do with taxation, it's going to affect society somehow. Just making a choice between income and sales taxes affects society, and is in effect "social engineering". Sales taxes discourage purchasing. Or how about property taxes? Those discourage purchasing and owning property (and frequently drive people to move to locations with lower property taxes). Most places have all three; how you set their levels relative to each other amounts to "social engineering": should you have small sales taxes and huge property taxes? Or low property taxes and huge sales taxes? Should you tax staple foods or not? Taxing staple foods isn't exactly good for poor hungry people so if you do, you're going to get a lot of people complaining about that.

    In short, there's no way to avoid "social engineering" with taxation. So even though it's frequently done badly, an attempt does need to be made to do it well and fairly.

  6. Massachusetts, for a long time known as... by Fantasio · · Score: 3, Insightful

    Taxachusetts.