Group Weighs Court Action As Officials Talk Tech Tax
Amid growing opposition to a recently-approved new levy on computer and software design services, Gov. Deval Patrick was scheduled to host a private meeting in his office today with legislative and industry leaders to take stock of the technology business climate and potential impacts of the new tax.
Though it’s unclear whether Patrick and House and Senate leaders have an appetite for revisiting the tax increase this session, clamoring from the business community for lawmakers to either repeal the tax or clarify its scope has grown since late July, when it was approved as part of a state budget and transportation financing bill.
Supporters have argued the levy is a necessary source of revenue to support investments in infrastructure important for business growth. But critics contend the language of the new tax law is vague and unfairly targets a vital sector of the Massachusetts economy, making the state less competitive with neighboring and competitor states.
Some members of the technology industry have banded together in recent weeks to form the Spark Coalition, and launched what it calls the Beacon Hill Blitz this week to flood lawmakers’ offices with calls opposing the tax.
The coalition is working in consultation with the Massachusetts High Technology Council to consider filing a court injunction to block the application of the tax on the grounds that it’s “unconstitutionally vague.” The coalition is also supporting legislative and ballot-driven efforts to repeal the tax.
The Legislature approved the new tax, intended to generate $161 million in new revenue, as a key component of a broader $500 million revenue package to finance transportation investments. Though the governor vetoed the transportation financing bill only to have his objections overridden in the House and Senate, Patrick first proposed a similar tax on technology services in the context of his own larger tax reform proposal earlier this year.
“The governor wants to have an open conversation with business leaders, industry leaders and government leaders about where we stand with regard to the tax,” Patrick chief of staff Brendan Ryan said, suggesting the governor did not have a desired outcome from the meeting.
Republican lawmakers have been leading the effort first to block and now to repeal the software services tax, but opposition has begun to spill over with Senate Majority Whip Karen Spilka, also a candidate for the open House seat in the 5th Congressional District, filing legislation to repeal the tax after she helped approve it as part of the larger tax package.
Michael Widmer, president of the Massachusetts Taxpayers Foundation, has partnered with groups like the Massachusetts High Technology Council and business leaders such as Staples CEO Ron Sargent to mount a drive to put a question repealing the software tax on the 2014 ballot.
Most recently, Widmer called the tax "the most anti-competitive piece of legislation in my 21 years as head of the foundation" and predicted it "will cause incalculable damage to job creation and the Massachusetts economy."
The respected head of the Taxpayer Foundation, however, has drawn public scrutiny from Beacon Hill leaders who have expressed frustration that Widmer did not raise his concerns sooner after initially backing and praising the framework of a transportation financing bill announced in April by House and Senate leaders that included the technology tax provision.
It wasn’t until months later, after Widmer said his analysts had time to dissect and study the tax’s potential impact, that he warned it could hit businesses with a much higher $500 million price tag.
House Speaker Robert DeLeo has defended the tax provision as part of a “carefully measured plan,” and budget leaders in the House and Senate, in the face of concerns about the tax, have taken the unusual step of vowing to work with state tax law administrators to make sure the tax does not expand beyond the $161 million scope envisioned by its drafters.
Patrick last week described himself as “concerned but not alarmed” by the growing calls from the business sector and some Democrat and Republican lawmakers to repeal the tax, either through legislative action or at the ballot box.
“If there is to be a fix, then we need to have the whole conversation which is what do we replace it with,” Patrick said. The governor said he was particularly troubled by the “reputational impact” the tax was having on Massachusetts.
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