Move To Recall Controversial ‘Tech Tax’ Hits Central Massachusetts

Monday, August 26, 2013

Steve D'Agostino, GoLocalWorcester Business/News Contributor

Massachusetts's new 'tech tax' is inspiring mounting opposition statewide, prompting one Central Mass. politician to reverse herself on the issue.

The movement to recall the state's new and controversial tech tax has reached Central Massachusetts and caught a prominent politician flat-footed. State Sen. Karen Spilka (D-Ashland), who is running for Congress, has reversed her own position on the issue.

Spilka now wants to repeal the new state sales tax on computer and software technology. Yet she just voted in favor of an $800-million transportation-finance bill that included the so-called “tech tax” - expected to raise about $160 million a year in revenues,

Curiously, Spilka did not oppose the tech tax, which took effect July 31, when it was being considered on Beacon Hill. “This wasn’t on people’s radar screens,” she told the Boston Globe in explaining her questionable vote. She now opposes the tech tax, she adds, because of constituent complaints.

By that, Spilka likely means the Bay State’s deep-pocketed, politically influential tech sector.

The new tech tax is so unpopular among Mass. business leaders that Sunshine State Governor Rick Scott has issued a public invitation to Bay State tech firms. He encourages them to "book a one-way ticket to Florida” and predicts that the competitive climate is "bound to get worse in Massachusetts for businesses.”

‘Give them no rest until this tax is repealed’

The full impact of the new Mass. tech tax can't yet be quantiified because the state Department of Revenue is still defining the law’s scope – meanwhile, offering FAQ responses. What is known, however, is that leaders of the state’s tech and other business sectors think it will throw cold water on a significant and growing segment the Massachusetts economy--one that Worcester and Central Massachusetts looks to lure as part of new and more aggressive economic development.

Massachusetts state representative Karen Spilka, shown here with Governor Deval Patrick, has quickly reversed herself on the tech tax she voted to include as part of the state's transportation bill.

Under the tech tax, Mass. consumers are now required to pay a 6.25-percent sales tax on a wide range of software-related services. Those include modifying software that we buy in retail and online stores, configuring software programs, and either designing or developing websites.

Tech execs from several of the Bay State’s largest firms have banded together to ask Mass. voters to repeal the tech tax on the November 2014 statewide ballot. So far, more than 1,600 people – including a handful online - have signed an initiative petition in support of the ballot question. Two high-profile backers of the campaign are Ron Sargent, chair and CEO of office-supply retailer Staples, and Laura Sen, president and CEO of discount retailer BJ’s Wholesale Club.

Driving a movement: Mass. High Tech Council President Chris Anderson

One of the petition-drive leaders is Chris Anderson, longtime president of the Mass. High Technology Council. He stresses that “it was only the Mass. High Tech Council and Mass. Taxpayers Foundation who were early, vocal, and public advocates against this provision of the tax bill. No public hearing was held by the legislature to provide for open input from potentially affected taxpayers and businesses.” The High Tech Council has a 36-year history of successfully using initiative petitions to force statewide ballot votes —having been led more than a half-dozen such ballot campaigns.

Anderson and his business colleagues have filed a petition with the state Attorney General Office’s to began the year-long petition process. If the AG’s Office certifies the petition language, proponents would need to collect at least 68,911 signatures from registered Mass. voters this fall. If enough signatures are certified, the legislature would be required to repeal, modify or take no action on the petition by next May. The last step would be the collection of at least 11,485 additional signatures, following the May deadline.

One of the petition signers, Andy Singleton, CEO of Assembla, a Needham-based software firm, calls the new tech tax the “death knell for innovation.” The new tax, according to Singleton, who employs 42 people in his eight-year-old business, “will negatively affect almost every sector of the state’s economy.”

As examples, Singleton points to top Bay State retailers who rely on vendors to design and integrate systems to track sales and manage inventory. He also cites Mass. health-care insurers and providers that manage costs with electronic health-data systems, Mass. biopharmaceutical companies that use complex data systems to analyze data, Mass. manufactures that rely on computer-aided design for production, and many businesses that increase productivity by modifying standardized computer systems to meet specific needs.

Tech-tax foe: Analogic CEO Jim Green

Another tech-tax foe is Jim Green, CEO of Analogic, a Peabody-based medical-technology company that employs 900 people. “Thanks to the ingenuity of its people Massachusetts has long been a leader in innovation, which is why we have been proud to call this state home since our founding in 1967,” said Green, a High Tech Council board member. “This tax will negatively impact our ability to compete and win business and will likely pose an array of challenges to technology companies seeking to invest and grow in Massachusetts.”

Repeal the IT Service Tax sounds a clarion call to all Mass. businesses to join this latest anti-tax battle. The website asks people to continue calling state lawmakers, and “give them no rest until this tax is repealed.”

For a view of the country's taxation of computer and software services from the Massachusetts Taxpapayers Foundation, see below.

‘A black mark that will mar Massachusetts for years to come’

The tech tax does have its fair share of supporters - chief among them, Democratic Governor Deval Patrick. The Patrick administration believes the tech tax is needed, to raise money for various transportation-improvement projects throughout the state. After all, the Governor’s Office observes, transportation is vital to our state’s commerce.

Yet in seeking to improve the Bay State’s aging, decaying transportation infrastructure Patrick may be shooting Mass. in its own foot. Much of the public discussion surrounding the tech-tax issue has been about how much money the tax will raise instead of about “the wisdom of taxing a centerpiece of the Massachusetts economy,” a recent Mass. Taxpayers Foundation bulletin states.

The Foundation also challenges the Department of Revenue's estimate that tech tax will cost the computer and software sector only $161 million a year. “The tax … strikes at the heart of the Massachusetts economy, costing countless jobs for years to come,” the Foundation states. “Virtually every industry in the state will be affected by this tax—ranging from retail to life sciences to health care to finance—which the Foundation estimates will cost the state’s employers an additional $500 million in annual sales taxes.”

The $161-million figure, the Foundation states, is based on faulty assumptions that do not capture the full burden of the tax. According to the Foundation, they are as follows:

DOR’s estimate does not account for purchases that Mass.-based companies make from out-of-state businesses for which they would have to pay the use tax. Instead, it only accounts for revenues raised from purchases made by Mass. companies from Mass. companies.
DOR reduced its revenue estimate by 30 percent because it assumed just a 70 percent compliance rate, despite no apparent evidence to support it. Regardless of what happens in the first year of implementation, over time compliance would reach close to 100 percent, bringing DOR’s estimate to $230 million based on this factor alone.
The $161-million estimate only accounts for the taxes collected on computer-system design services and not those collected from taxing modification, integration, enhancement, installation, or configuration of standardized software.

“In the end,” the Foundation concludes, “regardless of the amount collected, the costs of the software-services tax will be far greater in terms of lost jobs, stifled growth and innovation, and a black mark that will mar Massachusetts for years to come.”

Steven Jones-D'Agostino is chief pilot of Best Rate of Climb: Marketing, Public Relations, Social Media and Radio Production. Follow him on Twitter @SteveRDAgostino