Maryland To Tax Custom Programming and Computer Services

mcwop writes "Early this morning Maryland passed legislation to apply a new 6% sales tax to 'custom computer programming' and other computer- and hardware-related services. Computer industry groups lobbied hard against the measure to no avail. Purchasers of IT services may find that in-house IT and buying out-of-state become attractive options, as well as cutting money out of other projects."

buying out of state isn't an option

[by Anonymous Coward]

since companies have to pay a use tax for those cases

IOW

[WindBourne (631190)]

Maryland gets you coming or going. I wonder what those congresmen do to the hookers

Re:IOW

[Sponge Bath (413667)]

I wonder what those congresmen do to the hookers

Pay them with your tax dollars. That's a fact.

Re:

[rivaldufus (634820)]

Not me - I specifically wrote in "not to be spent on hookers" on my last check to the IRS.
 

Re:

[FooAtWFU (699187)]

Not me - I specifically wrote in "not to be spent on hookers" on my last check to the IRS.

Money is fungible. So they'll just take the $N allocated to hookers from your check and spend it on Pork instead, then take $N from the Pork fund and use that instead.

Re:

[by Anonymous Coward]

In Other Words, Open Source/Free Software becomes an even better bargain! 6% tax on $) expense is $0 tax.

Re:IOW

[Paco103 (758133)]

I wonder what those congresmen do to the hookers

The same thing they do to their constituents. . . .

Re:IOW

[penix1 (722987)]

There's a recursive joke in there somewhere...

Re:buying out of state isn't an option

[superwiz (655733)]

Funny how you said "cases". A friend of mine recently avoided most of the tariff for a computer he sent to Germany by declaring it as a computer "case". Yes, I know you meant something else. I am just wondering... what pun?

Re:buying out of state isn't an option

[nurb432 (527695)]

But moving out of state is an option.

Re:

[RareButSeriousSideEf (968810)]

I recently bid 5% over my nearest competitor on a somewhat lucrative project (by my standards) for a Maryland client. The competitor happened to be in-state for the client. I'm not in MD, and the (extremely price-sensitive) deal with the competitor isn't yet inked. I'll be giving them a follow-up call in the morning.

Thank you, Maryland legislature! And to all you other MD-based purchasers of "custom computer programming," I'm as custom as you can get, I have good references, and I come with a built-in 6% di

Re:

[Red Flayer (890720)]

Thank you, Maryland legislature! And to all you other MD-based purchasers of "custom computer programming," I'm as custom as you can get, I have good references, and I come with a built-in 6% discount.

No you don't. They'll still need to pay Sales & Use tax on that; the difference being that they need to remit the tax themselves, rather than you billing them for it and remitting the tax.

Re:

[ahodgson (74077)]

The founding fathers were willing to go to war over something like a 1% tax. They lived in an age where it would be impossible to imagine paying 25% taxes, let alone the 60% that is now common in the OECD. Virtually no one had that much surplus wealth; only the exploitation of free energy on a large scale, in the form of fossil fuels, enable that sort of excess now.

So...

[jacobcaz (91509)]

So, no more development companies opening up in Maryland then? Smart move MD!

Re:So...

[PocketPick (798123)]

This isn't an attack on a software or hardware end-product (those were already taxed at the point of sale). What it says is that computer services - PC repair, network consulting, customer support phone charges, etc... will be taxed like other services and products.

And why should we be suprised by this?. The last time I took my car in for repair, I paid sales tax on part and labor. When I have my car parked Valet, taxes are factored into the the cost. And when UPS delivers a package for me, I pay tax on that too.

Yeah taxes suck, but I'm more suprised to learn that it wasn't taxed for all these years, rather than that it's taxed now.

Re:So...

[Stamen (745223)]

You payed "sales tax" on labor? Serious question, and perhaps that's how it works in your state. But in my state (CA), if you only provide services, without selling any product, you don't even have to get a seller's permit, as there is no taxes on services. I know because my company only provides services and no products.

Re:So...

[merreborn (853723)]

And why should we be suprised by this?. The last time I took my car in for repair, I paid sales tax on part and labor. When I have my car parked Valet, taxes are factored into the the cost. And when UPS delivers a package for me, I pay tax on that too.

In California, repair and installation labor is non-taxable [ca.gov].

Point being, some labor is untaxed in some parts of the country, so this development may come as a surprise to some of us.

Re:

[trolltalk.com (1108067)]

Sales taxes used to be thought of as regressive - but when you consider that, as Leona Hemsley said wrt income taxes - "taxes are for poor people", and how they have the $$$ to pay less than what would be considered "their fair share", a sales tax isn't all that regressive. After all, if they spend it, it will be taxed. When they buy a Rolex, they'll pay more tax than you will for your Timex.

Re:So...

[nick_davison (217681)]

More likely...

A mailbox is going to get opened in Delaware and a cell phone registered to that address, while everything else remains exactly where it always way.

Why do you think just about every credit card and predatory lending scheme seems to get mailed to you from Delaware? Because they've figure out it's a great business model to take half the amount of tax on all of everyone else's dubious business whilst not having to support anything more than the name-only corporate HQs.

Re:So...

[GateGuy (973596)]

Maryland state motto...

If you can dream it, we can tax it

Re:

[jcr (53032)]

So, no new IT companies in Maryland, and out-of-state vendors will prefer to work for clients who aren't in Maryland.

Yeah, the legislators have really screwed the pooch here.

-jcr

Re:Get real! Why should one business be favored ..

[smbarbour (893880)]

No, that's not what will happen. Let's use some hypothetical figures:

Company A writes software and troubleshoots computers, Company B mows lawns.

Let's say in Maryland sales tax is 6% and corporate income tax is 25%.

If Company A does $100,000 worth of business, they will now need to pay 25% income tax and 6% sales tax.

If Company B does $100,000 worth of business, they will only pay the 25% income tax.

At the end of the year Company A pays out $31,000 in taxes, while Company B pays out $25,000.

You may say thi

Re:Get real! Why should one business be favored ..

[cgenman (325138)]

In other words, It will now have to pay its fair share of taxes, same as other businesses.

Except other labor-only services pay no such tax. Specifically, any maintenence services (as opposed to fabrication of new items) are not taxed. From the Maryland tax code web page:

On the other hand, charges for repairing or restoring an existing item of tangible personal property to its original condition are not subject to tax. A charge for reconfiguring or enhancing existing tangible personal property, unless it results in the creation of a new and different item of tangible personal property, is also not taxable.

Essentially, IT is being singled out for paying taxes whereas other labor types do not. There is no tax on having your accounting done, but now there is a tax on having your accounting software debugged. There isn't a tax on having your car fixed, but there is a tax on having your servers fixed. There is no tax on having your nails done, or having your lawn mowed, or having your house painted. Why are technology services being singled out in this respect?

Re:

[lena_10326 (1100441)]

Your post misses one point. Nobody pays taxes on something they don't sell. You can write all you want, and never have to charge sales tax if you hve no sales.

My major issue with this taxation is that contracted programmers don't own the works they create (generally), therefore they have no product to sell. The contracting company owns the software from the first line of code to the last, so the only asset the programmer has is in selling his or her services, which is now being taxed even though authors,

Re:

[lena_10326 (1100441)]

The programmer working as an employee isn't being asked to start charging sales tax.

Which is why I wrote "contracted programmers".

This would probably have the side effect of allowing the tax to be set at a lower level overall

The only side effect of taxes is more taxes.

Re:Get real! Why should one business be favored ..

[Unnngh! (731758)]

I would hazard that the majority of IT related services in MD are subcontracted to some branch of the federal government. They are by far the biggest employer around these parts. Unless I'm mistaken, this is not going to have a great impact on government contractors. So it seems like it's really targeted to hurt smaller development/support shops. The entire tax hike has been geared towards smaller organizations and individuals - all the provisions for higher taxes on wealthier individuals were removed prior to the bill passing, as well. Thanks, O'Malley.

Its not that far of a drive to Deleware

[vertinox (846076)]

I don't see why this tax would do anything other than push computer related jobs out of the state and/or overseas.

So is this good or bad for coders?

[phorm (591458)]

In one case, it adds to the cost of hiring a contractor, thus raising the price of short or quick contract work (bad for contractors). On the other hand, hiring an in-house IT guy to do coding (which I'd assume isn't taxed beyond normal income taxes) may seem better, which perhaps means more permanent jobs.

Stupid taxes are still stupid, but is this one good or bad for the IT sector in general?

Re:

[Bluesman (104513)]

Good or bad depends on who you are. What's meaningful to discuss are the effects of this tax. Maryland IT in general is now 6% less productive, overnight.

This will factor into the "cost of doing business." Some number of employers who would have paid for services before will now either do without or look somewhere else where they don't pay the 6% penalty, ultimately they'll do without the productivity boost they previously would have had.

Those are the facts, it's simple supply and demand. What can be ar

Re:So is this good or bad for coders?

[funaho (42567)]

A 6% sales tax means that it's no longer worth it for me to do any work in Maryland

And this is where the real victims will be, those of us who do programming work on the side for some extra income. The hassle of getting a tax ID (which might require setting up a real company), collecting and passing on sales tax to the state is pretty big when all you had to do previously was declare a couple thousand extra dollars on your income taxes at the end of the year. The big consulting companies will complain about it, but in the end they'll just keep on rolling. The little guys will get rolled over.

Michigan (which is where I live and work) recently passed a large tax law change that will charge 6% sales tax on consulting services, among many other things such as massage services (yeah you'll pay 6% on your happy ending!) I'm still trying to decide if its worth the hassle anymore.

Re:

[Bluesman (104513)]

There are even additional hassles. I'm no longer a Maryland resident, but I'd probably have to file a non-resident income tax form at the end of the year just to pay this tax.

Previous experience shows that when you file such forms, the state of Maryland tries to tax your entire income for the year, not just the income you earned in Maryland. Simply submitting the form opens you up to all sorts of legal hassles and inquiries from an extremely incompetent government agency. When I lived there, I had such a

Why? Government jobs are onsite, that's why

[gelfling (6534)]

You can't move an awful lot of government programming offsite. It's where it is. There is a gigantic amount of government work in MD so the state sees a big juicy way to tax the Federal government (and itself) to suck some money into their own pockets.

One more positive for packages

[Maxo-Texas (864189)]

You don't pay a custom programming tax on "Word" or "Windows" or "Linux" and probably not for "Infinium" or "TMS" or "PKMS".

So this will be another factor boosting the use of packages by companies.

Given the enormous crunch coming for labor in general and programmers in particular, this is pretty much a nail in the coffin for one sector of business in that state. And as some companies successfully use packages, that will be used a model for other companies elsewhere.

buying out-of-state might not help

[stomv (80392)]

if they structured it anything like the sales tax, then there's an accompanying "use tax" of equal percentage. Generally speaking, states charge x% tax on anything purchased in the state payable at the point of sale, but also charge x% on the dollar value for all items purchased out of state and brought into the state, payable on tax forms. If they set up the same plan in this case, than buying out-of-state merely delays the tax due date by some time interval less than a year but doesn't change the amou

Idiocy like this...

[SputnikPanic (927985)]

... is the price that we Marylanders have to pay for returning one-party rule to the state. This tax is part of a $1.3 billion tax package that our "rock star" governor called a special session to get. In addition, he just increased the sales tax by 20 percent, an increase that disproportionately impacts poorer folks, the very people who the governor and his party keep telling me they deeply care about.

Re:Idiocy like this...

[superwiz (655733)]

Like I said in a previous post, it's a lot easier to run on the platform of taking care of the poor if you create more poor.

Re:Idiocy like this...

[tkrotchko (124118)]

"'boy is this guy trying to make a 5->6% move sound like a bigger deal than it is'."

Yeah, how dare he do the math and quote the correct percentage increase.

daydreaming

[oliphaunt (124016)]

If only there was some way to write the code out-of-state, and then transfer it to the buyer in Maryland... ... like a big series of tubes ...

Yay Maryland!

[Bluesman (104513)]

Having lived and owned a home for nearly ten years in Maryland, one of the most taxed states in the nation, this doesn't surprise me in the least.

It's one more reason for those heavily dependent on government services to flock to and continue to live in the state, and those who are actually productive to leave. And it's a downward spiral, they'll kill their small businesses and find new things to tax when they can't balance the budget for the umpteenth year in a row.

But the people of Maryland will keep voting the same bozos into office that will continue this spiral. Watching the election ads there was hilarious -- they catered to imbeciles like I've never seen -- and it worked.

Hell, it's a microcosm for our entire stinking, failing republic-turned-democracy.

Man, I'm bitter. But who wouldn't be?

Re:Yay Maryland!

[Bluesman (104513)]

Admittedly I haven't been keeping up with recent Maryland history, as further research indicates they had a budget surplus of $1.3 billion last year. I'm assuming that didn't go to paying off the overall state debt, as they're facing just as huge a shortfall this year.

Reading more into it, apparently their large surplus was from the booming real-estate bubble. This matches my experience, making a huge profit on the house I bought there before selling at the peak of the market.

Interestingly, the housing bubble was fueled by massive speculation and ridiculous lending practices, hurting a lot of poor people. Where did this surplus money come from? Well, ultimately, from the Fed which will continue to bail out mortgage lenders. See that dollar's value plummet? Add that to the hidden taxes imposed on every citizen of the country, including those in Maryland who are probably struggling to remain solvent in the disastrous housing market.

So how rich a state is Maryland really? Were it not for a constant, massive infusion of federal dollars, the state would collapse, starting with Baltimore. Who pays for massive infusion of federal money? The rest of the country.

Maybe it will continue, maybe it won't. A good long term plan would include measure to make the state of Maryland self-sufficient, but this isn't politically advantageous there. Kind of like the U.S. as a whole.

This whole house of cards will come crashing down, hopefully not as quickly and as soon as it should.

Expensive lawn care, free programming

[athloi (1075845)]

Hi, I'm in Maryland, and I'll cut your lawn for $25,000 and throw in a custom eCommerce system absolutely free!

Here in Illinois

[ScrewMaster (602015)]

They tried the same thing here in my State: so far it's been voted down. Our Governor claimed that the State could bring in an extra 50 million a year if they taxed such services. That would only work for a year or so, because all the people like me would immediately look for greener pastures. I mean, for crying out loud, if the goal is to efficiently remove the ability of in-state companies to avail themselves of local software talent, this is a great idea. From any other perspective, it's just mind-bogglingly stupid.

In any event, I'm really tired of our taxing bodies looking for every possibly opportunity to increase their take, regardless of the effect it will have on the local population. Only a complete fucktard who is totally ignorant of what he or she is doing could possibly propose such regulation. Of course, I just described your typical politician. They are ignorant and they really don't care.

I did some contract work recently (software only), and the head accountant requested my Tax I.D. so they could apply the proper sales tax. I told them they couldn't have it because, as of this date, custom software was not taxable. Had my lawyer verify that, and I faxed them a copy of the appropriate language (right from the Department of Revenue Web site.) They were surprised, because they had been told by their people that custom software was taxable. I figure I saved them some few bucks.

Re:

[Bluesman (104513)]

"Worse, they actually do care and have only the best intentions."

I used to completely disagree. I figured that someone who could get elected to a prominent political office couldn't possibly be that stupid and must be deliberately making poor decisions in the interest of looking good and getting re-elected.

Then I received a letter in the mail written by Annapolis mayor Ellen Moyer, congratulating the populace on weathering a hurricane. It was so poorly written that after reading it I was certain she had b

Taxing services

[FreeBSD evangelist (873412)]

How far do you think a proposal to tax the services provided by lawyers would go?

Re:

[gmcraff (61718)]

How about taxing political campaigns for their contributions?

It's growth industry: every year the amount send on political campaigns grows.

I propose a 25% tax on political contributions per criteria met:

• The contributor is not verified as being resident to the district of the vote (applies to out-of-area contributors)
• The contributor is not verified as being eligible to vote at all (applies to corporations, non-citizens, PACs)
• On that portion of the contribution above $2000 (or whatever used to be t

Tax the lawyers

[kcdoodle (754976)]

Are lawyers services taxed in Maryland?

Many politicians are also lawyers or have friends who are lawyers. I bet they wouldn't want their services taxed.

Re:

[TeraCo (410407)]

You're not entitled to shit.

Put your money where your mouth is and stop paying ALL your taxes. Fight the power!

Re:

[Unlikely_Hero (900172)]

And hopefully by not paying, make the power collapse under its own grotesque weight. Worthless fuckers

Re:

[UbuntuDupe (970646)]

But if we simplify the tax code, that would benefit the rich! --- Actual barrier to reform.

Re:This is awesome.

[superwiz (655733)]

Hey, it's a lot easier to run on the platform of helping the poor if you have more poor.