Legislature Seeks To Clarify Intent On Software Tax
Aiming to narrowly tailor a newly enacted sales tax on computer system services, Massachusetts House and Senate leaders wrote Thursday to Revenue Commissioner Amy Pitter, saying the legislation is a “more limited form of the software tax proposal made by Gov. Patrick in his budget recommendations.”
Amid an outcry from some lawmakers and businesspeople who objected to the computer services tax in a $500-million tax bill, legislative leaders said they would clarify their intent to the Department of Revenue, and in the Thursday letter, House Chairman of Ways and Means Brian Dempsey and Senate Chairman of Ways and Means Stephen Brewer wrote: “Based on the analysis of the department, our offices are expecting these sales tax changes to generate $161 million when fully implemented. Should the revenue or job impacts be greater than anticipated, or if the tax is imposed on vendors not intended, we will not hesitate to revisit these changes. We will remain vigilant as these changes to the sales tax are implemented to ensure that they have the impact we anticipate.”
The taxes, which include higher rates for tobacco and gas, will go into effect Wednesday, and DOR has released guidance stating the new application of the sales tax to computer services will “not apply to personal or professional services that do not themselves constitute computer system design services or software modification services and that are not directly related to a particular systems integration project involving the sale of computer hardware or software.”
The $1.9 billion tax proposal Gov. Deval Patrick filed in January raised much of its revenue from the income tax, though it also included an expansion of the sales tax to cover computer services. Patrick’s budget would have applied the sales tax to “storage of data on the seller's or a third party's server including disaster recovery services.”
In late June, when lawmakers struck their tax bill deal, Massachusetts Taxpayers Foundation President Michael Widmer estimated that one tax alone could generate $500 million.
"State leaders could hardly have chosen a more perfect tax to undercut the future of the Massachusetts economy," Widmer said at the time. "This is the most sweeping computer and software services tax in the nation. It strikes at the heart of the state's innovation economy and will stifle job creation for years to come.”
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