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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."

29 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.

      --
      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.

      --
      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. Mass - Internet Business by houbou · · Score: 2

    R.I.P.

  3. Other than revenue, what's the motivation? by Virtucon · · Score: 4, Interesting

    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.

    --
    Harrison's Postulate - "For every action there is an equal and opposite criticism"
    1. 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.

    2. Re:Other than revenue, what's the motivation? by lseltzer · · Score: 2

      Why do they need a motivation other than revenue? In fact, revenue should always be the only motivation for taxes. When the government tries to do social engineering through the tax code they always botch things.

    3. Re:Other than revenue, what's the motivation? by Grishnakh · · Score: 2

      Just because you use something within a state boundary doesn't necessarily mean a sales tax is applied if you use it out of state.

      I don't think that's relevant here; I think they're talking about Mass. companies buying and/or using software (including custom-developed stuff, including custom-developed websites), not out-of-state entities buying software made in Mass.

      As an example if I make a phone call to somebody else out of state are they going to charge me for that even though I'm not a resident but I pay for the phone and service elsewhere?

      I don't think this is relevant to this tax initiative, but I can see this happening, if the whole internet sales tax thing is anything to go by, because it's a close parallel. Just think about it: promoters of internet sales taxes claim that tax-free internet purchases are unfair competition to local B&M retailers. However, all these tax initiatives have the e-tailer calculating the tax in the buyer's location, rather than the seller's location, and remitting that tax money to that state/municipality, even if it's across the country someplace the retailer has never been. What sense does that make? Suppose there was no shipping possible, and people could only buy stuff in person. So if you're in Maine selling stuff, and someone in Oregon looks at your website, sees something they desperately want, and wants to buy it from you. They have to get in their car or a plane and travel all the way from Oregon to Maine to buy it from you in person. What sales tax is this buyer going to pay, coming from Oregon where there's no sales tax (IIRC)? Simple: they're going to pay Maine sales tax. Sales tax applies at the location of the sale, not the home address of the buyer. It's why so many people living across the border in Washington State drive across the border to Oregon to buy stuff, and drive it back home to WA: they don't have to pay sales tax since there's no tax in OR. So, why don't these internet sales tax initiatives do the same thing: force e-tailers to apply the tax that applies in their own locality? Obviously, this would be a giant boon to Oregon and other states with no sales tax, as sellers would be flocking to those locations, but too bad.

    4. 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.

  4. 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.

    --
    You can't handle the truth.
    1. Re:Opposite effect by BLKMGK · · Score: 2

      Taxing anything that can so easily be done from elsewhere seems like a pretty stupid idea. It will be like trying to squeeze mercury...

      --
      Build it, Drive it, Improve it! Hybridz.org
    2. Re:Opposite effect by roman_mir · · Score: 3, Interesting

      If somebody wants to start a new business in USA, they should definitely do it somewhere in Texas but even better, Puerto Rico. If you start a company in Puerto Rico, they promise 30 years of no capital gains taxes, that's beside the business income tax of 4% and there is no federal US income tax.

      So if you start a company and it becomes successful, you definitely want to be there, you can sell your business and pay no capital gains. Clearly they won't be following MA example with this nonsense either.

      --
      You can't handle the truth.
    3. Re:Opposite effect by ChrisMaple · · Score: 2, Interesting

      New Hampshire is already heavily politically polluted by its propinquity to Massachusetts. Please do not encourage more shit heads to move here from Boston and Cambridge.

      --
      Contribute to civilization: ari.aynrand.org/donate
    4. Re:Opposite effect by bill_mcgonigle · · Score: 2

      New Hampshire is already heavily politically polluted by its propinquity to Massachusetts. Please do not encourage more shit heads to move here from Boston and Cambridge.

      Statistically speaking, Masshole transplants tend to vote along with New Hampshire values. I realize there are very vocal (and hypocritical) exceptions.

      And, yes, I'd about to read the article to see if it affects a colo'ed rack I tend to in MA. It's possible that it makes sense to move it out of MA.

      --
      My God, it's Full of Source!
      OUTSIDE_IP=$(dig +short my.ip @outsideip.net)
    5. Re:Opposite effect by ChrisMaple · · Score: 2

      Most big cities become big by being natural trade hubs, such as ports (New York, San Francisco) or transportation pinch points (Chicago?). Once established, workers of all sorts are attracted; as they become crowded the middle class moves to suburbs. Left behind are the poor in slums, vulnerable to political envy messages, and the rich in protected enclaves, some of whom lust for power. Because cities are densely populated it's easy to sell the message that everybody depends on everybody else; and because water, sewer and streets in cities are easily taken over or created by the government its easy to believe that more and more things should be.

      The geographical advantages and the advantage of making use of advanced infrastructure already in place are powerful attractors that can overcome a substantial amount of taxation and regulation. The burden can become too great, and we're seeing that now in Detroit where the combination of bad politics and the decline of American auto manufacturers is overcoming the advantages of being near Lake Michigan, Chicago, and sources of iron ore.

      --
      Contribute to civilization: ari.aynrand.org/donate
  5. 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.

    1. Re:Harmonising the tax standard ... by Anonymous Coward · · Score: 2

      Having lived in both Germany and the US for long enough to get acquainted with VAT and Sales Tax, the best thing about VAT is that it forces a "what you see is what you pay" pricing policy. We should do that with sales tax (and every other fee/tax non-at-the-register discount).

      VAT would suck in the US. They would keep sales tax and have both VAT and Income Tax too.

    2. Re:Harmonising the tax standard ... by Attila+Dimedici · · Score: 4, Informative

      An important point, the U.S. does not have sales tax, many of the states within the U.S. have sales tax. However, not all U.S. states have sales tax.

      --
      The truth is that all men having power ought to be mistrusted. James Madison
    3. Re:Harmonising the tax standard ... by RevDisk · · Score: 2

      Every time someone says "We should have a VAT here in the US", my response is "Kill it with fire. Then nuke the ashes to be sure."

      VAT is additional paperwork, and bloody annoying at that. Sales tax is at least straight forward, and usually fairly easy to audit. I've heard people say "Well, we can replace income tax with a VAT system." Yea, nope. You'll end up with both. Maybe one or two places went to VAT without an income tax, but in the States, it'll be both.

      I lived in Europe. There were many parts I liked. VAT is not one of them.

  6. Ugh, something to bang my head to on a Monday by storkus · · Score: 2

    Unlike most of you, it would seem, I did RTFS, along with the links from it to more stories: it seems that Massachussetts is just one state/location that is doing this sort of thing, along with NY, TX, UT, and Chicago.

    Bottom line: they tax software, software-as-a-service (SaaS, a new acronym to me), internet access, hosting, etc; this is just another item to add to the list, in their eyes. At first, I was going to say, "Another reason to use Free Software," but then the enormity of the truth crushed me back into depression: another thing I can't un-see (or un-learn, more like it).

  7. Re:Damn.. by drinkypoo · · Score: 2

    Will you be happy when you are utterly unable to purchase anything which the government does not approve of? Fascist.

    --
    "You're right," Fisheye says. "I should have set it on 'whip' or 'chop.'"
  8. And it is not like they will spend it wisely by Squidlips · · Score: 2

    Massachusetts will squander any additional tax revenues and be back the next year asking for more taxes. The state has an unlimited capacity spend (waste) tax dollars; the Big Dig construction project was supposed to cost 2 billion but came in at 14 billion and is so defective that it killed a driver a few years ago...

  9. Re:Because IT Companies is Massachusetts... by HCase · · Score: 2

    I hate to be the one to break it to you, but Texas already has a direct tax on computing services.

  10. Ah, yes. The state that brought us "The Big Dig" by Lucas123 · · Score: 3, Interesting

    Massachusetts' expertise at finding new things to tax is only surpassed by its ability to spend like drunken sailors. Case in point, the Central Artery/Tunnel Project in Boston, also known as Big Dig. The project, begun in the 1990s and completed in 2004, was the most expensive highway project in the U.S. When construction began, the Big Dig's cost was estimated at $5.8 billion. Eventual cost overruns were so high that the chairman of the Massachusetts Turnpike Authority, James Kerasiotes, was fired in 2000.The total expenses eventually passed $15 billion. Interest brought this cost to $21.93 billion. So, almost a 400% cost overrun. Oh, and BTW, the tunnels have been falling apart lately. One person was already killed by falling ceiling panels, and remediation work has been flourishing.

  11. Re:Wrong Title by LVSlushdat · · Score: 2

    Here's a suggestion... Why don't they just skip the "pleasantries" and just tax EVERYbody 100% of EVERYthing.. You know that's where states like the People's Republics of Massachusetts, New York and California (and a few others) are heading towards.. All these new taxes that these "bastions of socialism" keep dreaming up and passing simply cause a mass exodus of businesses (and people) from these states.. Unless they want to quit hiding their true intentions and put up concertina wire and trip mines around their borders and create an "Iron Curtain" to prevent their citizens from escaping, like their ideal, the old Soviet Union did, these new taxes/regulations are gonna keep driving business away from these states. I was a lifetime Calfornian, but wife and I began to see the writing on the wall in the mid 90s and moved from California to Nevada. My only complaint is we, here in Nevada, now seem to be trying really hard to go down the road California is traveling and I for one, don't care a bit for it.. Guess its time to move to an actual red state, since Nevada now seems to be getting bluer and bluer....

    --
    THANK YOU, Edward Snowden!! Americans owe you a debt of gratitude (whether they know it or not..)
  12. Massachusetts, for a long time known as... by Fantasio · · Score: 3, Insightful

    Taxachusetts.

  13. Re:Because IT Companies is Massachusetts... by TheSync · · Score: 2

    Their like locusts that bring their failed urbanite liberal voting policies with them and blight out the local economy.

    Yeah, as if Austin isn't contributing to the Texas economy...since 2004, an estimated 168,500 new jobs have been added to Austin's regional economy, and regional payroll increased by $8.46 billion.