How Did It Happen? The Massachusetts Tech Tax Timeline10:15 AM EST Mon. Sep. 09, 2013
As the tech tax repeal movement marches its way through the courts, legislature and ballot measures, many business owners have been asking: How did this happen? It all started with the legislature, which looked to raise additional funds for the failing Massachusetts transportation system and sought out the software industry for a supplemental source of revenue. CRN takes a look at the steps the bill took through the legislature as well as those made after its implementation by the repeal movement.
On Jan. 16, Massachusetts Gov. Deval Patrick laid the groundwork for tax hikes in his State of the Commonwealth address, calling on the need for added infrastructure, innovation and education. He addressed the needs of a troubled transportation system and, while recognizing that there is "no good time to raise taxes," the importance of collecting funds to repair it.
"If we want to accelerate growth and expand opportunity throughout the Commonwealth, we have to invest more," Patrick said in his address.
Just more than a week later, Patrick submitted his official budget proposal to the legislature on Jan. 25, which included the tax on software services among many other measures.
After a series of debates, the conference committee returned with its final version of the bill, called "An Act Relative To Transportation Finance." A conference committee is the process by which the individual House and Senate bills are compiled into a single final version. Multiple members in attendance said that few legislators actually showed up to the debates. Rep. Matthew Beaton stood up to apologize to his interns for their disappointing experience as only 76 members, he said, were in the legislative chamber out of 160 members to debate the more than $500 million tax bill.
Roll Call to accept the conference committee version:
House: 106 Yeas to 47 Nays
Senate: 34 Yeas to 6 Nays
On July 18, Sen. Bruce Tarr and other Republicans put forward amendments to strike the tax from the bill, but all motions were rejected by the vote of the legislature. The bill was enacted later that day, moving it forward before the Governor to be either signed into law or vetoed.
The Governor decided to veto the bill because, while it addressed the short-term needs of the state's transportation, he did not believe it was comprehensive enough.
"It responds to a key priority of my Administration and will stimulate many jobs. I thank the Legislature for that. But this good bill is not good enough," Patrick said in a statement explaining his vote. "For these reasons, I will not support it," he concluded.
Despite the Governor's objections that the bill did not provide enough revenue, the legislature voted to override his veto, passing the bill into law.
House: 123 Yeas, 33 Nays
Senate: 35 Yeas, 5 Nays
On July 31, just a week after the bill passed into law, the tax on software services took effect.
Delcie Bean, CEO of Paragus Strategic IT in Hadley, Mass., said that the quick turnaround left him scrambling to try to figure out how to implement the tax on his business. He said he has around 400 billable events a day, each of which has to be decided individually if it is taxable or not, leaving him with a sudden administrative burden.
"I have to have a fairly educated, well-paid person spend 20 to 30 hours a month figuring out how to bill the clients," Bean said. "That's the real tax."
Florida Gov. Rick Scott sent an open letter to 100 Massachusetts businesses, urging them to buy a "one way ticket" to the Sunshine State. The letter pointed out improving economic conditions in the state, low unemployment and increasing rates of job creation.
"It's bound to get worse in Massachusetts, just as last week we saw them raise taxes on gasoline and even computer services," the letter said.
On Aug. 7, 20 Massachusetts business leaders submitted a signed petition to the state attorney general as the first step in the long ballot initiative process. While the tax could be repealed earlier, the petition submission got the movement rolling to get the issue on the November 2014 ballot. Signers of the petition ranged from industry advocates to local IT companies to larger corporations such as Staples Inc., BJ's Wholesale Club Inc. and Boston Scientific Corp.
Sen. Karen Spilka (pictured), who previously voted for the tax, announced a change of heart on the tech tax and said she was filing with the legislature to repeal the tax.
"We need to send the message that we really want the tech industry to grow and thrive here. And this tax seems to go against this," Spilka said in an interview with CRN at the time.
In response to the growing confusion surrounding the tax on software services, Sen. Stephen Brewer and Rep. Brian Dempsey (pictured) distributed memos around the legislature, explaining why the tax was important to keep and addressing common concerns.
"The changes to the sales tax will help level the playing field by requiring technology companies' products to be subject to the sales tax, just as other businesses' products are taxed," Dempsey's memo said.
In an attempt to better understand the tax implications, a group of Republican legislators arranged a series of roundtable discussions throughout the state and invited local IT professionals to join. Business professionals who attended one of the eight roundtable events in Wakefield, Mass. said the tax was confusing and vague. Many attendees of the roundtable discussions expressed their love for the state and its way of life but said the legislature was making it impossible for them to stay.
Scott Foster, a lawyer and partner at Bulkley, Richardson and Gelinas in Springfield, Mass., announced he would be helping put forward a lawsuit against the tech tax. He said that he hoped to get an injunction placed on the tax, which would temporarily freeze it, so businesses could have some time to adjust or work toward repeal.
"Let the [Department of Revenue] figure it out ... and give everyone the breathing room," Foster said to CRN at the time.
On Sept. 3, Brian Cardarella of Boston-based web and mobile software consultancy firm DockYard, organized the Beacon Hill Blitz, an event designed to flood the Massachusetts legislature's phone lines with calls concerned about the software services tax. While Cardarella said the event only logged around 300 of the 400 calls it hoped for, he said that he thinks the event really helped get the legislature's attention.
"Hopefully this will really lend weight to getting us on the road to a possible repeal," Cardarella said.
Cardarella said that he will help organize another Blitz if the issue makes it before the legislature.
Two events on Sept. 4 signaled steps toward the repeal.
Governor Patrick, previously silent on the issue, arranged a closed-door meeting with industry representatives to discuss the tax, which he called "concerning." While those who attended the meeting said no conclusive decisions were made, they said it was "constructive."
On the same day, Massachusetts Attorney General Martha Coakley (pictured) announced she had certified the petition to move the issue to the 2014 ballot, which means the petition can start collecting the 70,000 signatures needed to put it on the ballot.
Republican lawmakers Sen. Bruce Tarr (pictured) and Rep. Bradley Jones have announced they will also put forward legislation to repeal the tech tax in the wake of responses they heard at the roundtable discussions. The motion comes just weeks after Sen. Karen Spilka also announced her intention to file a repeal motion.
Looking forward, the first day the taxes are due to the state Department of Revenue is on Sept. 20. Companies in the state and nationally are working hard to figure out what it all means for their clients and their bottom line.