Massachusetts Lawyer Takes Tech Tax To Court To Give Businesses Breathing Room

A lawsuit, revealed Wednesday and championed by lawyer Scott Foster, is challenging the law's validity on the grounds that it is vague and unconstitutional.

"The statute itself is worded in such a way that these companies can't understand how to comply with it. No one is saying they don't want to comply with it -- it's a law they want to comply with but they don't know how," Foster said in an interview with CRN.

[Related: Global Business Looks To Leave Massachusetts, Reduce Headcount After Tech Tax Hit ]

Foster, a partner at Bulkley, Richardson and Gelinas in Springfield, Mass., said that the companies he had spoken to were so confused by the tax that they were not sure how to implement it on their invoices. The definitions provided by the legislature, he said, made it difficult for companies to determine what the language actually meant in practice.

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"Because [software services is] not a term used in our industry, it opens it up for vagueness," he said.

Companies Foster spoke to were using a variety of methods to cope with the confusion, including some putting stickers on their invoices to let customers know there may be an additional tax charged later on and others just charging all of their customers the additional 6.25 percent sales tax with promises of rebates later if it was incorrect.

The worry for many companies is that, if not implemented correctly, they could incur heavy tax evasion penalties or even felony charges for willful failure to withhold, which could lead to up to five years in jail, he said.

"A lot of business owners are very scared," he said. "If they throw up their hands in frustration, that could be seen as a willful failure."

Foster said he is working to file the case in a couple of weeks and is currently assembling a group of companies for it. After he files there will be a request for an emergency hearing, which will take place a few days to a week after filing. A judge will listen to the pros and cons of placing a temporary injunction on the tax, which will temporarily freeze the implementation of the tax on business owners until the case is decided. A later hearing will place a preliminary injunction on the tax, which will remain in place until the case makes its way through the court system, a process that could take years, Foster said.

Although Foster said he is working with the groups associated with the ballot initiative and the legislature, he said the advantage of filing the lawsuit and receiving the injunction is that it could buy businesses some time to figure out the tax. While the ballot initiative and motions in the legislature are moving forward, business owners currently must collect the tax for the September filings.

"These things take time, and businesses don't have time right now," Foster said, although he added that if the legislature acted quickly and "put a pause button" on the tax, the lawsuit wouldn't necessarily have to happen. The attorney general's office also could agree to the injunction after he files the lawsuit, Foster said.

"[The attorney general] could say it makes sense given the open confusion about what this law means, we agree to this injunction for a certain period of time. Let the [Department of Revenue] figure it out ... and give everyone the breathing room," Foster said.