
Massachusetts Introduces Software Service Tax - imb
http://www.masslive.com/politics/index.ssf/2013/07/as_software_services_tax_hits.html
======
asmithmd1
MA has so many make-work jobs who do absolutely nothing at least they could
leave those of us trying to do something alone. I was talking to a guy who
used to be a product designer for Brookstone, Polaroid and GM. He has an idea
to create 100 simple products all manufactured within 100 miles of Boston.

[http://www.onehundred.co](http://www.onehundred.co)

He thought he would reach out to some MA economic development organization and
let them know what he was doing. They got back to him right away, I forget
which exact agency, to let him know they would not be able to provide any
help. He was kind of miffed because he hadn't asked for anything - but now he
knew they would not be able to help no matter what he might need.

I tried to look up the agency he contacted and I found these agencies:

Commonwealth Corporation

MassDevelopment

Mass. Office of Housing and Economic Development

Mass. Office of Business Development

Mass. Business Development Center

Mass. Small Business Development Center

Mass. Export Center

Mass. Office of International Trade & Investment

MassVentures

Mass. Growth Capital Corporation

Mass. Technology Collaborative

Mass. Technology Transfer Center

Mass. Clean Energy Center

Mass. Life Sciences Center

Commonwealth Marketing Office

Don't worry about any waste or duplication - the Mass. Office of Performance
Management & Oversight was created with the job of making sure all these
groups are working together.

Each of these places has dozens if not hundreds of employees with titles I
can't even parody:

Executive Assistant to the Deputy Director

Program Assistant to the Director

Director of Cluster Development

[http://www.masstech.org/meet-masstech/our-team/meet-our-
staf...](http://www.masstech.org/meet-masstech/our-team/meet-our-staff)

All of these people standing by ready to fire back an email that they really
can't be of any help

~~~
Zakharov
Well, I'd assume "Executive Assistant to the Deputy Director" is the secretary
for the no. 2 at the MTC, which doesn't seem all that unreasonable. The
"Program Assistant to the Director" is probably a project manager. The
"Director of Cluster Development" is probably in charge of whoever is
developing clusters, whatever those are. The titles are slightly overblown,
but little more than I'd expect at any government department or large
corporation.

~~~
hga
It sounds like you aren't familiar with the depths of corruption in
Massachusetts state government. Let's put it this way: the last three previous
Speakers of the House are all Federal felons.

------
tomheon
According to a friend of mine who is relatively knowledgeable about this law,
it was originally intended to target enterprise companies that were
essentially selling software for next to nothing and then charging like mad
for the "installation and configuration" to avoid sales tax.

The wisdom of even that approach is debatable, but the actual language of the
law is far from conveying that intent and is a total, indecipherable mess. No
one has the remotest clue what is actually covered under the language of the
law.

I'm part of a small software consultancy in MA, and we've now got 30 days to
decide which of our customers this crazy language applies to, and which it
doesn't. Is Django "pre-written" software? Does spinning up and customizing an
instance count?

It's crazy town.

~~~
SilasX
>intended to target enterprise companies that were essentially selling
software for next to nothing and then charging like mad for the "installation
and configuration" to avoid sales tax.

Such is what happens you impose high tax rates: people relabel transactions so
they fall outside the tax. The. You have to issue new rules that try to make
the relabeling not work. Then, the regulation books start to explode in length
to cover the all the blooming techniques, and with it, he regulatory
agencies...

And then the process starts over.

~~~
mindrag
This is America, where even people who pay a next-to-nothing tax rate on high
incomes complain about supposedly high tax rates.

------
readme
Hey guys,

The ABI Hub is an awesome coworking space and startup incubator in Manchester,
NH. [http://abihub.org/](http://abihub.org/)

I've been going there for a few months and moved to NH at the beginning of the
year. It has been awesome.

There is a technology scene ready to bloom in Manchester. Also, the cost of
living is about 50% of Boston's.

For those who aren't from around here, NH doesn't have unfair taxes :)

~~~
asmithmd1
NH has no sales tax and no state income tax. Of course you have much fewer
"services" than MA. For example MA has a 19 member Commission on the Status of
Women - which of course needs an executive director. And the executive
director needs an assistant.

~~~
mindslight
But don't forget that reduced services include things like town water (you'll
need a well with a radon filtration system), a reliable electric grid (you'll
need a generator), and timely snow removal (you'll want a vehicle that uses
thrice the fuel).

And the crux of the matter - as NH does absolutely nothing against federal
taxes, you'll still be paying the majority of your present transaction costs.

~~~
SamReidHughes
NH has water (right?), an electric grid (no idea whether it's reliable, all I
know for sure is that they have a nuclear power plant) and based on what I was
told, the best snow removal in the country.

~~~
pc86
Since when do we let facts get in the way of snark?

~~~
mindslight
No facts were harmed in the making of this snark.

Sure, not everywhere in NH is like that. But one can't spread libertarianism
by proposing to dismantle the fire department.

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rwhitman
This has disturbing implications for the rest of the country. What happens if
the developers of Massachusetts just roll over and give the state hundreds of
millions of dollars of extra revenue? What message does that send to other
states?

~~~
noarchy
I have no doubt that this will spread. I'm almost surprised that it hasn't
taken off before now. But as for the people of Mass., they won't be rolling
over and "giving". It is money that will be _taken_. That's one of the big
differences between a tax, and government "revenue", and the way a business
makes its money.

~~~
hga
Maryland tried this and killed it, try this search:
[https://www.google.com/search?q=maryland+computer+services+t...](https://www.google.com/search?q=maryland+computer+services+tax)

Particularly unwise given how easy it was for people to move to Northern
Virginia.

------
tomkinstinch
Is a plumber in Massachusetts required to charge tax on all services rendered,
or only those that involve pre-made physical parts?

Is there a paralogous example from a different profession that we can use to
gain insight into this new law?

~~~
asmithmd1
No plumbers don't charge sales tax on services; neither do doctors, lawyers,
dentists, or landscapers. Sensible states tax things they want to discourage
like gasoline use or smoking. They don't tax people trying work more.

~~~
Pxtl
It seems ridiculous to charge only one profession for providing service, and
it sounds like software people just have the worst lobbyists and the worst
public image (plumbers are the iconic symbol of the "little guy" small
business).

Here in Ontario it's much simpler (but steeper) - the harmonized
provincial/federal sales and service tax is 13% on everything. Sales, service,
you don't have to give a crap. There's a short list of exemptions for
groceries and medical stuff.

Our taxes are high, but straightforward.

~~~
mikegioia
You guys pay 13% every time money exchanges hands? Does that include when you
eat a restaurant, and if so, do you also tip the waiter?

~~~
_delirium
You realize that in most of the U.S. you pay sales taxes on restaurant food
_and_ tip the waiter, right?

In some states groceries are exempt from sales tax, but restaurant food is not
exempted by any state (except in the trivial sense in states that don't have a
sales tax at all).

~~~
amalcon
New Hampshire even has a special sales tax just for restaurant food (despite
not having a general sales tax).

------
coldcode
Move. Now. The more people leave the state and/or refuse to provide services
to people there the less money they get. Sure it's not a easy thing to do at
all but the only way politicians get a message if it there is a high price
attached.

------
Dangeranger
In the state of Vermont where I live our legislature introduced and passed a
similar bill several years ago, under nearly identical circumstances. Nestled
into another bill, the state house inserted and passed a sweeping tax on
"Cloud Services" which affected all software delivered to the end user via the
internet.

The real salt in the wound for businesses was that the tax was going to be
retroactively applied to the previous four years of revenue. This would have
driven a fair share of our fledgling technology sector out of business almost
immediately.

Thankfully, our Governor did not agree with the way the tax was passed into
law, nor how it was applied. He first delayed and eventually removed the tax
all together.

When politicians sneak revenue draining taxes into the business market like
this, without public comment or discussion, it makes me truly concerned that
they are simply self interested.

Hopefully the Massachusetts state house will pull their heads out of the sand
and clear up the confusion with their constituents. Maybe by next election
cycle, those affected will let their feelings be known in the polls.

------
rwhitman
"Singleton is upset that the technology industry did not lobby more strongly
against the tax, and he worries it will hurt Massachusetts"

It occurred to me I've been a developer for 13 years and have no clue who's
got my back if the government starts to target my business unfairly. What kind
of industry lobbies or trade groups are even out there to fight a law like
this?

------
dunham
There is a FAQ here: [http://www.mass.gov/dor/docs/dor/law-changes/faqss-
computer-...](http://www.mass.gov/dor/docs/dor/law-changes/faqss-computer-
software-2013.pdf)

Per question 23, it appears that adding a computer to a LAN is an example of a
taxable service.

------
kgrin
I'll say this as the owner of a small consultancy that will (probably) be
affected by the new law: I have far less objection to the tax itself than the
specifics of how it's implemented. In any case, it might first be worthwhile
to read the actual language in question [1].

So with that in mind, the implementation problems include:

1) There was very little notice given to the affected parties - the bill
passed July 24, effective July 31. (This is somewhat unavoidable, since part
of the stated purpose of the tax is to fund transportation projects in 2013 -
so delaying its effects would be counterproductive to the underlying goal).

2) There's still quite a bit of ambiguity surrounding implementation,
including - crucially - what's taxable and what isn't. MA DOR (the state's
version of the IRS) has issued some FAQs [2] and clarifications - which,
annoyance aside, have actually been helpful. However, they only begin to
answer the very real questions that this presents for many businesses - but
we're responsible for collecting the tax basically yesterday (first filing due
September 20, to cover taxes starting August 1). I read today that DOR will
issue additional clarification and guidance in October... which I can only
assume will be retroactive. So we'll likely be forced to either charge some
people an unnecessary tax, or take an unexpected 6% revenue cut, or possibly
end up having to pay penalties. Merits of the tax aside, the uncertainty -
inevitable with such a new rule! - is what's killer.

3) Broadly speaking, the distinction they're trying to draw in the law does
seem a bit weird. As I understand it (and IANAL, but have talked to a few -
all of whom are still trying to parse what this means), if I write a custom
CMS "from scratch", that's still considered a tax-free service. If I train you
on, say, Wordpress (or any open-source or commercial product, really), that's
still tax-free as well. If, however, I build a plugin to integrate Wordpress
with your in-house SSO system - that's taxable. A custom theme? Probably.

Where do frameworks fit in? (Say, if I write you a shiny, custom CMS in
Django). I don't know. There's a specific clarification issued by DOR that
operating systems are exempt - or rather, to quote directly: "Custom
application software (including custom software that incorporates such
proprietary code) that is designed to run on a prewritten operating system is
treated as custom software and not as a modification of the prewritten
operating system software."

There are some interesting caveats being carved out - for example: "Suppose a
computer system is designed but not actually built, so software is never
actually integrated with hardware. Are the services still subject to sales
tax? No."

Again, while on the whole I'd of course prefer that this tax go away entirely,
at the end of the day it's no more or less rational than the taxation (or non-
taxation) of many other goods and services. The critical problem here is the
implementation, which introduces a whole lot of uncertainty and risk into a
business that, until a few days ago, has never had to deal with this sort of
thing.

[1] [http://www.mass.gov/dor/businesses/help-and-
resources/legal-...](http://www.mass.gov/dor/businesses/help-and-
resources/legal-library/tirs/tirs-by-years/2013-releases/tir-13-10.html)

[2] [http://www.mass.gov/dor/docs/dor/law-changes/faqss-
computer-...](http://www.mass.gov/dor/docs/dor/law-changes/faqss-computer-
software-2013.pdf)

~~~
gaadd33
It seems like they should extend that to all industries and not just single
out software development. Why not say that any lawyer who just modifies
boilerplate legal documents is now subject to a tax? That would seem to be in
the same spirit.

~~~
greenyoda
However, it's not likely that they'll ever put a tax on lawyers, since most
members of the state legislature are probably lawyers themselves.

------
readme
Throw all the software services into the harbor!

~~~
saltyknuckles
Careful it may be considered terrorism these days.

~~~
CamperBob2
It certainly was at the time.

------
saltyknuckles
Looks like Boston needs another tea party or LAN party? I don't know but
something has to be done. It seems like this industry has been attacked
unfairly as of late.

------
jwatte
The main problem I have with this is that they are taxing information work
that is clean, to fund /freeways/. Way to go, 20'th century!

------
curiousdannii
Why do all the American states have different taxes?

Here in Australia we have 10% GST (Goods and services tax). So wherever you're
from in the country you can expect both goods and services to be priced the
same. So much simpler for the average consumer!

~~~
vermontdevil
The name of the country is United States of America.

So it was formed that way - each of the original 13 states got together to
form a more perfect union. But each of the 13 states retained some autonomy
including ability to levy tax within the state for various means or purposes.

Been that way ever since.

Can't see a national tax - our culture would not allow it.

~~~
rdouble
There is a national tax on gasoline.

~~~
vermontdevil
Let me try again. I'm talking about a national tax to divide among the states.

Federal Income tax, Gasoline tax, etc all fund the Federal Government. And yes
the Feds does distribute some of the money via grants or a Congressional
action (Medicaid, highway funds, etc).

But I don't see the US adopting a national use tax like VAT that is collected
by the Federal government but automatically given out to the states based on
where the money is spent.

Our country likes to keep things on the state and local level as much as
possible.

------
sologoub
What a mess... So if I buy a SaaS product that requires some config on the
providers end, is that taxable too?

~~~
kimura
Taxachusetts

------
asmithmd1
Why computer services? Why not tax something no one likes - radio and TV ads

------
camz
I practice tax law and write for forbes on tax law.. this area of law may seem
confusing, but that is mostly for the media buzz. The law has generally been
fairly clear.

Many states have long had laws that taxed "pre-written or canned software." MA
is just one of the newer states that have enacted this law. New York has had
the law in the books for years.

Pre-written software means that you've previously created software and you've
literally re-used the code.

Professional, custom or designed software is still exempt as a "professional
service."

What happens when you're like SAP and you start with canned software, but then
customize it? Then, you pay sales tax on the canned portion and then you don't
pay tax on the customization costs.

In sales tax audits, they test this by comparing code sold off the shelf to
the code presented as "custom." Generally, consultants are used.

There are also sales tax on "informational reports." This started as paying
sales tax for "stock tips" sent over the fax. But, today this has extended to
informational reports that were created by software. Thus, a lot of businesses
that "don't sell canned software" and provide a "service" cannot escape the
tax law by simply providing the end product alone.

I can understand people getting angry, but the law has been around for a
while... I've gone through multiple audits with companies such as reuters,
bloomberg and etc. I don't particularly feel that its unfair, since if you
provide a "custom service" then you're exempt.

Obviously, there are always going to be ways to "technically" get away with
avoiding sales tax, but that doesn't mean that they're inherently unfair.
Companies avoided paying sales tax on software for a while, until the states
realized that they were being cheated by these businesses. Then, businesses
decided that if we don't sell the software on "CDs" then its not tangible
property and "legally not taxable." So, they would bring the CDs and install
the software and then leave with the CD's to effectively avoid the sales tax.

Then, they started to allow the software to be hosted online and only provide
the "end-product aka SaaS." Services are commonly exempt and hard to follow,
thus they escaped the states radar for years. Its a cat and mouse game that
will continue.

I think the best example is if an attorney or accountant were to provide the
same exact tax return or memo to everyone, then it'd be taxable under sales
tax law. But, because we provide a different memo or tax return to everyone
(maybe using a system like turbotax or something), it is a custom product
because the service is only applicable to that person. If the developer
provides a copy of turbo tax, then its taxable because its always the same.
But, if the developer uses RoR, Python or some other system to "create" the
end product for the individual, then its not taxable. Hopefully, this crude
example is decent enough to get the point across.

~~~
gaadd33
Why do they single out software in this regard? Or are there similar laws on
the books for things like legal documents? i.e. if I have a lawyer draw up a
lease and its a boilerplate with the correct blanks filed in, is there a tax
on that? If not, why not since it seems extremely similar?

------
cpursley
Taxachusetts...

