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Massachusetts Enacts 6.25% Sales Tax On "Prewritten" Software Consulting
First time accepted submitter marshallr writes "Technical Information Release TIR 13-10 becomes effective in Massachusetts on July 31st, 2013. It requires software consultants to collect a 6.25% sales tax from their clients if they perform 'computer system design services and the modification, integration, enhancement, installation or configuration of standardized software.' TIR 13-10 was published to mass.gov on July 25th, 2013 to provide the public a few working days to review the release and make comments."
Six days from the announcement of a new tax to being required to collect it? Really? How many businesses can change their processes that quickly?
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Massachusetts companies simply start providing software as a service or remote desktop usage into offices in other states. All the ones with big numbers they'd want taxed involved anyway.
captcha: shopped
Not sure I see a problem with that. Afterall, a reseller is a reseller is a reseller. Seems to me that it encourages creativity and innovation in those who wish to avoid the tax.
Time is what keeps everything from happening all at once.
Anyone hear of anything similar being considered in other states?
Developers: We can use your help.
Have gnu, will travel.
If you've followed the Detroit saga, you'll know that many states have made deferred pension deals with their unions that are now coming due as the Boomers retire.
Some states, such as Michigan have deferred liabilities of 241% of their annual revenue. Massachusetts is in the top 10 "bad" list (100%).(source of this is Moody's BTW, and this has been reported in The Economist)
What this means is that retiree benefits will take up an ever expanding part of state expenditures, crowding out education, police, fire, parks, and other benefits that modern citizens have come to expect.
So states are hungry for any revenue, Maryland for example, has set up a rain tax to tax people for the amount of rain that falls on their property (Maryland is in the top 10 "bad" list right next to Massachusetts), so the idea that they'd tax something in a completely arbitrary and crazy way will become the Normal.
You're about to see a wave of municipal bankruptcies all across this country, and local taxes are about to go through the roof.
Enjoy.
Even I've heard of Taxachusetts and I don't live anywhere near it.
I am Slashdot. Are you Slashdot as well?
The application of the sales and use tax to Computer/Software Services will not apply to personal or professional services that do not themselves constitute computer system design services or software modification services and that are not directly related to a particular systems integration project involving the sale of computer hardware or software. Examples of such non-taxable personal and professional services may include (a) consulting and evaluation services with respect to existing computer systems to identify deficiencies and needs, and (b) services to prepare a business to use modified software, such as training.
Now I have no idea what that means, but I'm betting that that (or one like it) is one that was negotiated with the management of IBM and Microsoft to ensure that the tax won't apply to them.
So will pay the tax? Yup, the little guys.
BTW Mass. government employees, including state legislators, enjoy generous lifetime pension benefits of the sort that started vanishing in the private sector some 30 years ago. Those programs don''t come cheap.
As a resident of Virginia, where taxes are low and there a lot of good software engineers employed tenuously in the government contracting business, I'd just like to say thank you to the Massachusetts legislature. Send your people here, have them write an interstate contract enforceable in Virginia not Massachusetts and reap the savings!
I see you haven't noticed but politicians spend more, no matter what the tax rate.
I trust you are consistent: The Titanic needs more icebergs, crackheads need more crack, Barbie needs bigger boobs.
No brain, no pain.
So why do they want to enforce making it more expensive to have secure computers ?
Why only on computers ? why not a sales tax on for example plumbing ?
Cause everyone needs to take a dump so should be a profitable tax.
However since its only on standard software and open source is nonstandard
I'm gonna presume its just a tax on those selling Microsoft software admin services.
Just saying it like it are.
A generic "business" or "consulting" tax would mean that (for example) lawyers would charge a tax on their services. What are the odds of a law like that passing?
Suppose you were an idiot. And suppose you were a member of congress. But then I repeat myself. -- Mark Twain
This is my problem. They don't draw the line on what is pre-written and what is not. If you are not writing your own assembly code, are you going to be liable because your code is mostly pre-written libraries? If I write a .Net or Java application there probably is more code in the libraries than anything I customized.
It seems like this is fairly arbitrary, if they need money they should just put a small tax on all services. If you tax on something so arbitrary, only the honest companies will pay. The other ones will find a way to weasel out of it.
if they need money they should just put a small tax on all services
Don't worry, it'll come to that. While I do agree that the slippery slope scheme doesn't work in every situation, the government has it down to an art. What's worse off is that this tax has nothing to do with anything in this system of business that is causing an undue burden on the government. They're doing it as just another money grab.
As a person gets fatter they need to take in more calories to maintain their fatness. As the government becomes fatter they need to suck off the production of the (for now) free people to maintain their overreach. In the long run, both lead to decreased quality of life and an early death.
The sales tax should be on the software, not on the additive consulting or installation or customization charges.
Follow the money. Government just wants your money.
(-1: Post disagrees with my already-settled worldview) is not a valid mod option.
We're just over the border, and we promise not to pull any shit like this on you.
Why? It's simple: http://freestateproject.org/
Detroit is not a state, it's a city which managed to shoo all its manufacturing jobs away. Now Massachusetts is going to shoo all jobs away to India.
I think I know the origin of this tax bill and what it is intended for.
Acquia - http://www.acquia.com/ - is a large firm that specializes in Drupal. A lot of the work they do is around setting up, configuring and maintaining Drupal websites.
While they don't produce the majority of the code that is in Drupal, they do provide a lot of services around it to consumers and other businesses. This is really a tax on VARs and other people who implement Drupal using their services.
I am sure there are a lot of other companies that operate in a similar space. While I don't like it, I can see the potential revenues to be drawn in through such a tax.
I still have no idea what it means.
Here in Texas, services are not considered a "sale". I'd have to provide some kind of product for consulting to be taxable here. It's why I keep no inventory, and I require my clients to acquire their own hardware (I'll gladly tell them exactly what they need).
In SOVIET RUSSIA... erm...NSA AMERICA, the Internet logs onto YOU!
The tax is on software consultation, not programming.
"Prewritten software consulting"? It's like the double rainbow of taxes: what does it MEAN?!
nuff said
rewriting history since 2109
They want to shift the tax burden to poeple not living in Massachusetts. Most of the income is earned out of state. (California)
This is likely a maneuver against such tax-sheltering movements. By taxing consulting you remove some of the incentive to use consultants versus having in-house employees. Not much, but it's there. Chances are if your consultancy wants to do business with an MA company they will be subject to this tax on their services.
And have you paid your property taxes yet?
I have no problem with paying taxes to fund something -- but the gov't damn well better use the money it takes from me to do EXACTLY what it's supposed to. The problem arises when the politicians say they'll use the funds for X, but there's nothing in the new tax that actually REQUIRES them to spend the new revenue on X, so they piss it away on pet projects and favors owed to the special interests who got them elected, and come back the next year and say, "we're still broke, and still need to fix X." That's the same as theft in my book. Social Security would easily be self-funding if the goddamn politicians stopped stealing from it!
But what this hurts is the small to mid-size shops that cannot afford in-house employees for their various IT services.
This all sounds overly specific.
Troll is not a replacement for I disagree.
1. Declare laws to be software
2. Problem reduces to an existing one
3. Profit
Inheritance is the sincerest form of nepotism.
You know what I love to read about? Idiots who think that the solution to overspending and irresponsible and unaccountable spending is more spending. Why, we're completely wasteful and irresponsible with the ridiculous amount of wealth we gather from the population already -- but if you just double the amount you give us, we will TOTALLY start to be more conservative and reasonable with how we spend your money!
Seriously, how much fucking more money do you want from me? Americans are taxed out the ass -- they just don't realize it, because they don't sit down and look at all of the extraneous "fees" they have to pay on top of just property taxes, county income taxes, state income taxes, federal income taxes, medicare, unemployment insurance, and sales tax. My tally comes to around 40% per year. You're telling me I should not only be gleeful about handing that over, but want to hand over more? To the people spending trillions on military-industrial-complex-welfare masquerading as "nation building" in the middle east? Droning people? Incarcerating non-violent criminals? Bailing out banks and auto manufacturers? Spying on citizens? Antagonizing the rest of the world? And how much more of this do you want me to hand over? Should *I* be the one only taking 40% of my money?
Also, infrastructures aren't falling down around anyone. Maybe in a few select cities, like Detroit, sure. Guess what? Throwing more money at that corruption and gross negligence isn't going to correct the corruption or negligence.
The United States have some of the most convoluted tax, deduction and credit structures in the world. Its not so much that I have to pay them. Its that the person* next to me has his own personal deduction, carved out by some Senator in his pocket.
*By 'person', I include corporations. The tax code here looks askance at all of my deductible expenses while companies depreciate their hunting lodges and book their profits in Ireland. Why can't I have my employer direct deposit my paycheck to a Dublin bank?
Have gnu, will travel.
Yes, this does look like a loophole being closed. Did they also close the other loophole that allows legal services from lawyers to bypass the sales and use tax? Just rewrite the original law that establishes the tax and say it is 6.25% across the board for all products and services ... period ... and be done with it.
now we need to go OSS in diesel cars
... While I don't like it, I can see the potential revenues to be drawn in through such a tax.
Please make a distinction between "rational" and "good".
"Rational" is when someone does something for a reason; in this case, we can "see" the reason as "getting more revenue".
"Good" speaks more to the overall intelligence of the decision. The value of the decision in the future, or taking the whole situation into account.
In this case, the decision is "rational", but not "good". It ignores the underlying problems of runaway government spending, oppressive regulation, and economic viability.
Cities are failing not because of unreasonable pensions, but because of corruption in times past, unreasonable growth beyond what was needed, and mismanagement. Detroit's problems arose because population fell by 1/2 over the last 20 years, and government didn't shrink to compensate. People left Detroit in droves because it was simply a bad place to be.
This was so obvious it was a cultural meme: Note this clip from "A Fist Full of Yen" (released in 1977!).
When your city is so badly run, when the environment is so awful that businesses and people start leaving in droves, you might want to take a hard look at your management. What's the popular meme for Massachusetts? Is it "efficiently run, strong infrastructure, personal freedom, and business friendly"?
... While I don't like it, I can see the potential revenues to be drawn in through such a tax.
Pointing out the rationality of the decision lends it a measure of respectability. It defuses popular sentiment against the decision, saying essentially "don't complain, it's reasonable".
You should still complain. It may be "reasonable", but it's not in any way "smart", or even "good".
Move to New Hampshire - it's got a different meme.
The tax isn't on programming. It is on the sale of software and the sale of servicing software. If you do everything in house in MA then you don't pay any tax. The whole point is to tax people working in NH, CA, and TX.
Consultants can largely solve this problem by having customers declare explicitly that the work doesn't fall in the realm of taxable services as defined by the ruling.
There's so much ambiguity in the wording that as long as you're not in the crosshairs of being a reseller who supplies expensive software (think Oracle, not so much Windows) in the guise of a (heretofore) non-taxed service, you'll be fine. It's not worth their time to enforce it otherwise.
The key is being creative. Supplying customized Drupal installations? No, you're writing unique software to customer specifications for the customer to use with their existing Drupal platform. And maybe you're supplying training about operation and installation of Drupal systems. And helping them evaluate their business needs that might be met by aforesaid custom software. The ruling (section II) even explicitly exempts "training" and "evaluation". Maybe a small fraction of your business might fall under the ruling, but if that's the case, you just need to make sure it's covered by separate contracts. If there isn't significant money flowing out of your business for (reseller tax-exempt) software that your customers eventually get, it will be pretty challenging for the DOR to argue that your business is taxable... as long as you're smart about how you define the business.
I'm as worried as the next fellow about jackbooted thugs from the government running my business into the ground. However, the reality here is that these are overworked civil servants who are motivated by meeting their goals--and they'll do that by pursuing the cases that the statute is intended to target, because those will be most likely to generate revenue. No bureaucrat wants a lawsuit, they want passive compliance. Maybe ten years from now, it will be different, but if it is, I'd bet it's because the law is expanded (to cover all services, in the name of "fairness"), not because this statute is egregiously misinterpreted.
And have you paid your property taxes yet?
Yes, and gladly.
New Hampshire is always ranked one of the lowest states in overall tax burden: frequently the lowest, usually in the bottom three.
Massachusetts is always one of the highest, always in the top 10. (Citation)
So yes, I pay my property taxes, and they are unbearably high.
Are you saying that paying more overall is good, if it lowers property taxes?
What exactly is your point?
Yea but you can control that by owning less. Your income is not as controllable as the material possessions you own.
I don't have as much an issue with taxes as all the bitching here indicates. My problem is with how revenue is being used. Cities are more than willing to shortchange pension plans (then cry poverty in 20 years when the bills come due), finance billion dollar mega stadiums that price the average Joe right out the door, or fund other upscale touristy projects. Yeah yeah I've heard all the talk about how this helps the city increase it's appeal, but when you're neglecting basic services it's like spending $5K on a new paint job for your Gremlin when the transmission is shot.
I swear to God...I swear to God! That is NOT how you treat your human!
And this occurs in the same state where the original Tea Party took place? How convenient that they forget their own history.
Exactly, I'm not sure what the OP was smoking or where he got it, but it was an entertaining read and really showed a different mentality. The politicians in this country are the worst of the worst and don't spend ANY of the money wisely. They have proven that they can't even work with the insane sum of money that we give them, and definitely don't deserve more. The mentality of "the government can spend your money in smarter ways than you" is fucking dumb and for the weak minded and weak willed people of the world. Senators and Congressmen in this country are the most corrupt ass-scum I've ever seen. At least the dictators of the world don't pretend to be benevolent.
You know what I love to read about? Americans bitching about their taxes. Their infrastructure is falling down all around them, their schools, police, fire departments, utilities, etc. are all chronically underfunded. But lawdy lawdy, don't dare raise their taxes to try to FIX some of this stuff. From the outside looking in, all this complaining just seems so... what are the words? Stupid and shortsighted.
Americans pay enough in taxes that if the government actually spent them halfway responsibly and in the way they were sold to the public, the streets in America would be paved in gold (figuratively, not literally of course...waste of a good electrical conductor). The failing infrastructure is a testament to government waste & corruption.
Strat
Progressivism (aka US 'Liberalism'): Ideas so good they need a police/surveillance-state to enforce.
He famously quipped that he could slap a tax on a galloping horse. You have to feed the vast patronage & pork machine in Mass, after all....
But lawdy lawdy, don't dare raise their taxes to try to FIX some of this stuff. From the outside looking in, all this complaining just seems so... what are the words? Stupid and shortsighted.
I find it funny that you think this tax has anything to do with fixing anything. There was a plan on the table to actually fix Massachusetts' bridges and try and improve our public transportation system to be actually - what's the word here, "useful?" It included simplifying the tax code and actually reducing the sales tax.
That plan was shot down.
Instead we're increasing taxes and not fixing infrastructure.
I'm not entirely clear on what the increased revenue is expected to cover, but as I recall it's basically intended to cover the existing budget deficit. You know, the budget that already didn't fix infrastructure or bother to properly maintain it.
You are in a maze of twisty little relative jumps, all alike.
Go read up on New Hampshire, where exactly this happens.
They have a heavily modified income tax and no sales tax, and then indeed they do smash it into property taxes.
Draw your own conclusions - it's far from problem-free.
My first Journal Entry ever, in 8 years! http://slashdot.org/journal/365947/aphelion-scifi-fantasy-horror-poetry-webzine
you know what I like to read about, ignorant fucking twats who think higher taxes or spending will fix something. Just what we need, more pork barrel projects that benefit very few people or more people totally on the government tit, basically breeders for criminals and the useless lazy.
No, this is a NASTY new tax.
The huge case is when the software is cheap and it's all in the support!
Typical examples are OEM/self bought Windows and Quickbooks. The raw software is pretty cheap - but the consulting could be thousands. So suddenly they want a *sales* tax on it? I already bought my software a month ago (for example). Now I have to pay a *sales tax* on a *service*?!
Plus there are really evil clauses in accounting theory that kick in here. If these are "sales" and not "services", that's gonna have a colossal impact on the IRS Schedule C as someone else hinted at elsewhere. I think it changes if you can use Cash Based Accounting vs Accrual, and if you have Sales, you have the Inventory clauses kicking in.
My first Journal Entry ever, in 8 years! http://slashdot.org/journal/365947/aphelion-scifi-fantasy-horror-poetry-webzine
I guess this applies to busnisses that make computers then put lionux on it. Despite the fact that they don't pay for linux.
The point is only to make sure people aren't confusing "no income tax" with "no tax", and you've now provided a more clear picture of the NH tax situation than the OP, so mission accomplished.
I pay my property taxes every six months and they are pretty high but in the ballpark of nearby MA cities. It's not as if MA doesn't have property taxes in addition to high income and sales taxes.
Just to put some numbers on this, I live in Nashua, and our property tax rate is $21.49/$1000 of accessed value, a nearby MA town, Westford, for example has a rate of $16.10, so I'm paying around $1000 a year more in property tax then if I had the same accessed value house in Westford. Which is a lot, but a lot less than I was paying in MA income tax for the privileged of driving all the way to Cambridge every day.
SOLUTION: Become active in the governance of your country.
Time spent becoming active in the governance of my country is time taken away from programming.
Applying sales tax to anything BUT the merchendise (i.e. NOT labor of any kind) is labor/income tax. Which, if you've read up on the history of income tax, shluldn't be legal in the first place.
This whole ideal about trickling/sneaking/forcing in legislation regarding either establishing or increasing taxes of any kind is immoral and we should be ashamed of allowing it to get this far.
We can't just prune this tree, we have to cut it down.
There, I said it.
(I am an independent technical consultant in California, so this especially hits home for me..)
It is pitch black. You are likely to be eaten by a grue.
Back in the Depression of the 1930s, the federal government established a series of programs that put people to work, building roads, bridges, parks and other infrastructure, and also scientific research and art programs. These folks didn't get a lot of money, but they were able to do useful work and send the money home to their families. Quite a bit of that work still stands, such as Timberline Lodge. Now the government spends huge amounts of money on duplicate bureaucracies, hands out money to millions of people, framed in such a way that those folks would actually lose money if they took a job. Even 30 years ago if the Health and Human Services dept. were a 501c3 non-profit it would lose its non-profit status as the percentage of revenue that actually gets to the target recipients is so low.
In part it's a systemic problem - back in the late 1970s I worked for a local social service agency. Since about 10% of their funding came indirectly from the Feds, in order to buy a pencil they had to submit paperwork to (IIRC) eight agencies with over 15 levels of decision making. This is the systemic argument against moving ever more activity to the federal level - all decisions should be made at the most local level practicable, but because the feds have to defend their system against a much larger pool of thieves, they have to have much more comprensive mechanisms to deter that theft, which engenders inefficiency and additional cost.
It's easier to be a result of the past, but more fun to be a cause of the future! http://www.spacefinancegroup.com/
And now you can kiss what's left of the "Massachusetts Advantage" goodbye. Welcome to the Silicon Deathbed.
I have to wonder if the increase in revenue from this will offset the loss in revenue as income and sales moves out of state. In the short term it will but in the long term this will definitely be affecting many business decisions.
Here's an analogy, as seen from my state;
State: Please give us more money for schools. It will make them better. Education is important.
Citizens: OK, here you go!
State (a few years later): Please give us money for the schools. They are underfunded. Education is important
Citizens: well, OK, here you go.
State ( Switching school funds to pay for useless stuff unrelated to schooling) Hey, we need more money for schools. See how badly they're doing?
Citizens: You keep asking, you switch stuff around.. why should we?
State: We Promise! We won't, it's built into THIS law!
Citizens: OK, if you don't move it around...
State ( a few years later): We didn't account for solar flares. We need more money for schools. education is important. If we don't get it, our kids will end up selling apples on the street corner.
Citizens: This better be it!!! Here you go.
State ( a few years later): Hey, we need more money for schools
Citizens: Screw you
State: why do you hate civilization and the children?
I currently live and work in Cambridge and I'm curious, how far is that drive and how long does it take you?
I have found there are just two ways to go.
It all comes down to livin' fast or dyin' slow. -REK, Jr.
I used to work near the Alewife T station which is at the extreme West end of Cambridge and it took about 37 minutes door to door if I avoided rush hour. It would be much longer if you were going to the MIT or Harvard areas. Another developer I knew back then took the train all the way from Exeter, NH but that was insane to me at 1.5 hrs each way.
"computer system design services and the modification, integration, enhancement, installation or configuration of standardized software".
"No problem; we only did one of those, not both..."
Maybe things are changing, but shouldn't sales taxes be for tangible goods?
That a compiler and its libraries are treated as 'standardised' software (it is)
and
that source code represents the modification integration enhancement installation or configuration of the compiler and its libraries... (rather more debatable, but possible)
Well, unfortunaly it is just too difficult for them to simply take there work elsewhere. Ohhh well. Let Larry Kudlow have his way with our city.
He is crazy if you think about it; I am not.