Massachusetts Tech Tax Passed Amid $600 Million Revenue Surplus


The highly contentious Massachusetts tax on software services was passed just a month after legislators ended the year with a more than $600 million revenue surplus, with expectations of an even higher surplus for 2014, legislators said.

The 2013 fiscal year, which ended in June, was concluded with a revenue surplus of $627 million above the benchmark for the year, according to the Massachusetts Department of Revenue. A month later, on July 26, legislators voted the tech tax into law, providing an estimated $161 million in additional revenue to fund state transportation.

Technology businesses and others around the state have been up in arms over the tax, saying it is unfair and unclear. Legislators who voted against it agreed, saying they didn't see the point in harming an industry through raising taxes when there was a surplus of money to cover needed funds.

[Related: Solution Providers Fight Back Against Massachusetts Software Services Tax]

"We're actually doing better than expected, and that begs the question, 'Do we really need to raise taxes?' " said Rep. Peter Durant, who voted against the bill that included the tech tax.

The 2014 fiscal year is expected to have an even higher surplus of revenue than the previous year, said Rep. Brian Hill, who also voted against the bill. He said he heard estimates of an $800 million revenue surplus for the coming year.

"Could we not have addressed transportation in a better way than we did by passing the transportation finance bill? Those are the questions that should have been asked, answered and debated in a more productive way," Hill said.

Massachusetts Department of Revenue figures are showing the state is over estimates, with the report for July showing a revenue surplus of $75 million above monthly benchmarks. An increase in cigarette taxes will first be collected at the end of August and increases from gas taxes and the software services tax will not be seen until September.

Rep. Keiko Orrall said that not only was the tax not needed due to the surplus, but it also opened the door to more taxes on services.

"It's reprehensible that we would put this tax in place," Orrall said. "It sets a precedent for other services to be taxed at a time when we don’t need it." Orrall voted against the bill that included the tech tax.

State laws require that much of the surplus money will go toward the state's "rainy day" fund. The state already has one of the largest such funds in the country, Hill said.

"When my other colleagues moved forward to put forward this services tax, I remained opposed because of the revenue situation that we were in as well as the fact that we could have addressed the issues without raising taxes," Orrall said.

All of the representatives said that they had received many calls from concerned constituents about the tax, way above the usual amount they receive. They agreed that they hoped for a repeal, but did not know when, or if, it would come about.

PUBLISHED AUG. 22, 2013