Global Business Looks To Leave Massachusetts, Reduce Headcount After Tech Tax Hit
CEO of Bedford, Mass.-based Integrated Computer Solution (ICS) Peter Winston said that his global business is already feeling the hit from the newly implemented Massachusetts tech tax and is looking into alternatives to save money by moving out of state or slowing down hiring practices.
"It's nuts. I can't believe [the legislators are] so insensitive to the small high-tech company," Winston said. "It really is very frustrating."
Winston said that he specifically sought out Massachusetts as the location to start his business in 1987 because of the growing talent pool from the universities and the large amount of businesses in the state. His company now has offices globally, but it is still headquartered in Massachusetts.
The Massachusetts software services tax went into effect July 31 and extended the state's 6.25 percent sales tax to services associated with computer software. The tax will be collected for the first time in September but is already causing confusion and anger around the state as solution providers and others are sorting through what the tax means for their bottom line.
While he said the new tax is only one of 100 factors, it adds one more reason why Winston is looking to change his location.
"I have been forecasting my percentage of the business to go down, and I am actively reducing my headcount in Massachusetts," Winston said. Although the company is global, it still does 20 percent of its business in-state.
Winston doesn't expect to lay off employees, but he said that he isn't looking to hire any more employees to replace others leaving and summer interns finishing their terms. ICS employs 100 workers worldwide, 50 of which are located in Massachusetts.
"We're seeing where the wind blows on this," Winston said. "Without the uncertainty, I would be one notch more bullish."
However, his fear is not based on the tax itself, but comes from the uncertainty and liability surrounding the confusion about the tax's implementation. He said his business is now responsible for making sure his customer pays the tax because he is personally liable if it is not paid.
"My main fear is not about the tax -- it's about the hanging liability," Winston said.
NEXT: Tax Confusion And What To Do About It
The problem is that no one understands how to implement the tax. Winston said that he is getting different stories from his accountant and his attorney on how to charge the tax on services provided by ICS.
In the meantime, he is trying to figure out how to absorb the costs. Winston said he usually receives around a 10 percent profit margin on his services, meaning the tax would eat more than half of his profits.
"[The legislators] don't understand how big 6 percent is," Winston said. "If I can't pass it on, if I can't swallow it somehow, it dramatically kills my profits ... That's the problem with the thing. It's not just increase your price by 6 percent like a product -- it's a service."
Winston said that he is hoping that the legislation will be repealed but is trying not to get his hopes up in the meantime. He worries that even if it does get repealed, the governor will veto it. Meanwhile, he is helping out with the grassroots campaign to get the measure on the ballot and is encouraging people to write letters to their legislators.
"I don't have a crystal ball, but it's not simple," Winston said. "I think the best hope is that the legislature comes to their senses and repeals it."
PUBLISHED AUG. 26, 2013