Mass. State Rep: 10 Reasons I Opposed The Tech Tax, And Still Do10:00 AM EST Wed. Aug. 28, 2013
After the July 31 start date of the Massachusetts tax on software services, anger has continued to brew among the tech community over the tax and a repeal motion is already making its way before the legislature and toward the 2014 ballot. Rep. Daniel Winslow, who voted against the tech tax as part of a bill to fund transportation, discussed with CRN why he voted against it in the first place, and why he -- and other state representatives -- continue to fight for its repeal. Here is a list of 10 reasons Winslow told CRN he wants the tax repealed.
The tax was passed into law as part of the transportation finance bill on July 26 and went into effect just one week later. While taxes are not due until September, local businesses are left scrambling to figure out how to charge their customers and if their services are taxable. Winslow said that many of the business owners are erring on the side of caution and taxing their services across the board to avoid harsh tax penalties later on.
"It's an absolute nightmare. Some of the busiest people in the state are accountants right now," said Rep. Matthew Beaton, who also voted against the tax and heard the same issue from his own constituents.
The way the tax is written makes its implications on business owners incredibly broad, Winslow said, which means it could affect businesses on every level.
"At every stage of tech development, there will be a tax before it passes up the food chain, which is absolutely an impediment to economic growth" Winslow said.
Rep. Beaton agreed, citing how the DOR still hasn't finalized regulations on the tax, although it is already in effect. That leaves business owners picking up the slack to find out if their software services are taxable.
"The scope and the breadth of this thing is just phenomenal the way it's written," Beaton said.
The law left much of the interpretation to the Department of Revenue for implementation. Winslow said that part of their jobs as legislators is to provide clear, thorough laws that could be easily put in place by the DOR. However, that was not the case with this law, Winslow said. The DOR list of FAQs has at least 55 questions at last count. "It's a lousy, poorly drafted law," Winslow said.
Smaller companies have a more difficult time absorbing an extra 6.25 percent hit on profits than larger, national corporations, Winslow said. It has larger implications, as well, as customers hesitate to upgrade every year and instead upgrade every three or four years, revenue that mom-and-pop businesses relied on, Rep. Peter Durant said.
As the economy continues to improve and reduce unemployment, Winslow said that hurting the tech industry is a mistake, which represents around 20 percent of the state's GDP. "This is a jobs killer for revenue we don't need and reforms we've avoided," Winslow said.
Peter Winston, CEO of Integrated Computer Solutions, a global company based out of Bedford, Mass., said that he is already "actively reducing headcount" in response to the tax. While he said he is not laying off employees, he is no longer filling open positions when they become available until he determines the effect the tax will have on his business over the long term.
Winslow said that the problem with angering the technology industry, in particular, is that many of those businesses are especially portable and able to move across state lines. He said he has a friend who is the CEO of a local software company who is already in the process of moving his business to Arizona, just a month after the tech tax went into effect. Other businesses seem to be entertaining the same idea as they calculate the costs the new tax will take away from their bottom line.
Winslow argued that before the legislature puts more money into transportation, they should investigate why it costs so much more to maintain Massachusetts' roads than other nearby states. In Massachusetts, it costs 25 percent to 30 percent more to do public sector infrastructure than identical private infrastructure, Winslow said.
"Why don't we address those things? Why don't we make things less expensive?" Winslow said. "Why don't we have our roads last 20, 30, 40 years before we start shoveling funds into new roads?"
Winslow argued that this tax was a departure from any previous actions by the Massachusetts legislature, with no precedents set for a tax on services. Going forward, he said, it will put a tax on the software services industry that isn't a burden on any other sector of the economy.
"Why just this service? And why structure it in the form of a transportation finance bill?" Winslow asked.
Winslow said that the Republicans proposed an alternative to transportation infrastructure finance that didn't depend on raising taxes, but it was voted down. The bill focused on reforms and cost savings to raise the $500 million that is estimated to be generated by the transportation finance bill now in effect.
At the end of the 2013 fiscal year in June, the Massachusetts Department of Revenue reported a revenue surplus of $627 million above the benchmark for the year. At the end of July, the legislature passed the tax on software services into law as part of a bill to raise funds for state transportation. Some estimates for the fiscal year 2014 put the surplus as high as $800 million, which Winslow said left him asking: "Why do we need this tax to raise more funds?"