Massachusetts May Try To Tax the Cloud

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."

Comments

Other than revenue, what's the motivation?

[Virtucon]

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.

Re:Other than revenue, what's the motivation?

[Grishnakh]

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.

Opposite effect

[roman_mir]

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.

Re:Harmonising the tax standard ...

[Attila Dimedici]

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.