Solution Providers Fight Back Against Massachusetts Software Services Tax


Local businesses are already feeling the hit just days after the tax took effect, said Allen Falcon, CEO of Westborough, Mass.-based Cumulus Global, a cloud solutions provider. In particular, Falcon said he is affected by the taxes for services arranged prior to the July 31 start date that have not yet been serviced or had payment rendered. He said that, due to the short notice, Cumulus will have no choice but to absorb the extra costs itself, rather than returning to customers after a price agreement had already been made and asking them pay more to make up the price difference as a result of the tax.

"Do we tax everything and make ourselves less competitive and potentially overcharge our customers? Or do we take a stab at what's taxable and what's not with the understanding that we may face back taxes and penalties down the road?" Falcon said.

Massachusetts currently stands as the 6th largest tech employer in the country, according to TechAmerica, employing more than 250,000 workers. However, Falcon said that he has already heard of software development companies that are now looking out of state. He said his own company's expansion last April might have moved out of state if he had known the tax was going to be implemented because of the extra costs and paperwork headaches involved.

"What's interesting is that, in April, I expanded my office: got larger offices, signed a new lease and hired new people. If this tax had passed on Jan. 1, I would have strongly considered moving 20 minutes over the border to Rhode Island," Falcon said. "I would still have had to register in Massachusetts and pay the tax, but my life would have been much easier."

Widmer, of the Massachusetts Taxpayers Foundation, said that part of the problem with this industry in particular is that it is so mobile.

"A lot of these jobs are mobile, so you can just move across the border. Even if we win [with the petition], 15 months of implementing this can cause major economic harm, in terms of the software industry or people deciding to move across the border or not expand," Widmer said, referring to the time between now and the ballot vote set for November 2014. "I think a lot of damage can be inflicted in 15 months."

Chris Anderson, president of the Massachusetts High Technology Council, said the change would force companies to choose to either deal with the extra administrative costs or push forward innovation.

"It's an administrative burden that really dampens how you spend your time -- is it being creative or tax administration?" Anderson said.

NEXT: Legislators Respond To Tax Response