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."

Comments

Wow

[DeathToBill]

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?

Re:Wow

[Chris Mattern]

It's not a new tax. 6.25% is the general sales tax in Massachusetts. This is just a ruling clarifying, "Yes, it applies to you guys too."

Re:Wow

[Penguinisto]

It may take about 5 minutes to change tax rates in software, but I suspect it'll take a hell of a lot more than five minutes to update pricing policy, sales processes (and processing), to revise revenue/profit forecasts, modify forms (to point out this new tax, so you don't lump it in with generic sales tax), get the finance folks up to speed...

Re:Wow

[Anonymous Coward]

Governments have been "singling out one group of businesses" since Hammurabi first passed a tax specifically targeting breweries. That horse left the barn millennia ago.

Re:Wow

[skids]

Note that this effects a bunch of freelancers that are used to providing an untaxed service, and so have no idea how to go about collecting sales taxes and sending the proceeds to the government, since all they did was collect check, report it as SE income, and pay the social security tax on it on a personal income tax form.

Re:Wow

[phantomfive]

It's not changing the tax rate, it's introducing a new tax that was never there before. And that's even ignoring the fact that you'll need a lawyer to interpret the law, and decide which types of job will require the new tax, and which will not.

Re:Wow

[interval1066]

Hammurabi, benevolent as he may have been, didn't have to "pass" anything. He simply decreed it.

Re:Wow

[FatdogHaiku]

...That horse left the barn millennia ago.

And the appropriate "barn departure" tax was levied...

Re:Wow

[paiute]

Its called Taxachusetts for a reason.

Actually, it makes a nice portmanteau, but it is now factually incorrect.

http://money.cnn.com/pf/features/lists/total_taxes/

Massachusetts is #40 on the total tax burden list. Lower than fucking Nevada and Louisiana.

States really need revenue

[Anonymous Coward]

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.

Re:States really need revenue

[gr8_phk]

From what I can tell part of the problem in Detroit is that the pension funds invested in city bonds - a financially stupid move. So now if the city defaults on its bonds the pension funds are screwed. Had those funds invested in something sensible the problem would not be nearly as dire for the pensioners.

Re:States really need revenue

[Impy the Impiuos Imp]

States are spending more than ever. Cut off taxes and choke them seems to be the only way. See also the federal government.

As for Detroit, politicians past promised future generations' money to support retirees, a very easy thing to do.

We were warned about this. It is a vector to failure. I've just popped some popcorn over the whole thing. The reason these things are having problems is the math is identical to why the Ponzi scheme was made illegal -- charging current investors little or nothing in exchange for giving them the investmemt of future investors.

These schemes just have the perversity of being able to force you to be an investor.

Re:States really need revenue

[PeeAitchPee]

Maryland for example, has set up a rain tax to tax people for the amount of rain that falls on their property

It's worse than that. As a Marylander (not for long because of this type of nonsense), I can also tell you that the rain tax, like most other taxes rammed through in the last five years or so, does NOT have to go towards saving the Chesapeake Bay (the justification used to pass it). The revenue goes into the state's general fund, where it is pissed away by the politicians to do things like give state loans to sports bars. This is a huge reason why states like CA, MD, and MA are destroying their tax bases as people and businesses flee by the millions to more tax-friendly states.

Re:States really need revenue

[roju]

The impervious surface fee actually makes a lot of sense, and isn't simply a "rain tax".

Storm-water runoff is a negative externality that right now everyone in a community pays for regardless of their actual runoff. It's a tragedy of the commons - there's no incentive to minimize it. Charging a fee based on the area of impervious surface on a property converts that externality into a direct cost, rewarding those who minimize runoff and charging those who produce the most runoff more. A property owner need only replace impervious surfaces with pervious surfaces and they'll produce less runoff and pay less; everyone wins. It's the same idea as a carbon tax.

Re:States really need revenue

[dkleinsc]

States are spending more than ever.

No they aren't

It's interesting to see folks talking about "OMG, the government is spending so much!!!!" when in fact it's been dropping like a rock since about 2009-ish. What actually happened was pretty simple to understand: In the fall of 2008 the economy took a nose-dive, shrinking the GDP and causing a lot more people to qualify for SNAP and unemployment insurance and SS disability and TANF and Medicaid and a few other programs. The cost of those programs predictably skyrocketed despite no new laws passing. Since then, as fewer and fewer people have qualified, the costs have been shrinking. Meanwhile, all the budgetary belt-tightening that had happened elsewhere in the budget is still in effect, so in fact government spending is shrinking fairly rapidly.

Also, tax revenue is the lowest it's been since 1941, so complaints about taxes being unusually high are also wrong.

Re:States really need revenue

[Penguinisto]

The government would actually be the best suited to pensions since they can build up enough of a buffer over time that they should effectively be immune to fluctuations in the market and could eventually hit a point where they wouldn't even need to pay in to the pension accounts again. In short, bad fiscal management is the problem, no pensions themselves.

Problem is, Detroit's government did run those pension plans... they had a nasty habit of pilfering them to fund city projects.

Re:States really need revenue

[KingMotley]

Also, tax revenue is the lowest it's been since 1941, so complaints about taxes being unusually high are also wrong.

Not at the federal level. Government spending rarely goes down. In the past 60 years it's gone now in the following years:
1954, 1955, 1965, 2010 and 2012. Every other year it's gone up. http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200

But perhaps, we should be talking about tax revenue, not spending since that is what was asked, and in the past 60 years, revenue has gone down in years: 1958,1959,1971,1983,2001,2002,2003,2008, and 2009.

Better than gross revenue, it would be best to compare gross revenue adjusted for inflation per capita, but I don't have those numbers, but perhaps someone else does. Even better would be gross revenue adjusted for inflation paid per member of each income group, but again, I don't have those numbers.

Re:Only applies to prewritten software?

[gstoddart]

It also applies to Open Source software. And, what if you're not a reseller -- "you buy Windows, and I'll install and configure it".

Sadly, I'm just going to assume there will be all sorts of problems here -- because most of the time when lawmakers try to pass laws relating to technology, they fail miserably in their understanding of said technology and make a bigger mess of things.

Re:What is the reason for this tax?

[Tangential]

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?

Hey MA programmers! Move to NH.

[odigity]

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/

Let's call this the Acquia tax

[techsoldaten]

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.

Re:Elsewhere

[Penguinisto]

If they need more tax money why not keep things simple and increase the income tax?

Seriously? How are you going to hide a tax hike if you keep it open and honest?

Re:Elsewhere

[Githaron]

I think a prefer the opposite. Abolish the income tax and make a standard sales tax across the board. Plan the shift over several years in order to decrease the immediate impact of the switch.

Companies never pay taxes. They shift that burder to the customer through increased prices. Placing the taxes directly on the end user makes the tax system more transparent.

Re:Only applies to prewritten software?

[sinthetek]

It is no different than collecting taxes on any other service performed (eg cooking, barbering).

To my knowledge most states don't tax for services (especially not as highly as sales are taxed). Have you ever heard of a musician or lawyer (or even your aforementioned chef or beautician) having to collect any sort of sales tax?

Re:Elsewhere

[truthsearch]

That results in the poor paying proportionately more taxes than anyone else since they use almost all of their money to purchase necessities.

Re: Hey MA programmers! Move to NH.

[Thavilden]

And have you paid your property taxes yet?

Re: Hey MA programmers! Move to NH.

[Okian Warrior]

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?

Re:Even I've heard of Taxachusetts

[coolmoose25]

I'm a Nutmegger (Connecticut) and what the poster above says is technically correct. CT has surpassed MA in taxes. A bit like being the best smelling puckerhole in the outhouse though. Just to the north, as others have pointed out, lies the promised land of New Hampshire. They have no sales tax, no income tax, lower cigarette taxes by a buck or two a pack, State liquor stores with nationally recognized low prices (think duty free) and cheaper gas. Cheap gas, cigarettes and booze! And a firearms friendly state as well. A beautiful state, with wonderful features and vistas. Good roads. No frills schools with high performing students. How do they do it? Well, high property taxes because state aid to towns is low, combined with a hefty "tourist tax" - high taxes on hotel rooms. My job keeps me in CT but I'm retiring to New Hampshire. My wife wants to retire to Cape Cod. I told her that as soon as MA cedes it to NH, I will move there.

Re: install, configure, etc software

[TaoPhoenix]

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.