Illinois Considers Taxing Custom Software 369
Foobar_Zen writes "Illinois Governor Rod Blagojevich is proposing to tax custom software; he is hoping to generate $64 million.
You can read the story at burrwolff.com.
I am wondering if there any other states that currently tax for custom software? How is this going to affect Illinois? What does this do to independent application and software developers?" And what about software that adds value but itself is available without charge?
Yeah right. (Score:5, Insightful)
S/W development will just move from Illinois (Score:3, Insightful)
Oh joy (Score:5, Insightful)
And if you pay too much - forget it, you'll never see that money again. If you pay too little, they'll take you to court and add huge fines.
You can't win, you can't break even, and you can't even quit the damn game.
Article text (Score:5, Insightful)
1. Initiate sales tax on custom software: The governor estimates a business tax increase of $64 million by eliminating the distinction between canned software sold at retail (subject to sales tax), custom software (subject to service occupation tax on the value of tangible personal property transferred with the software) and software licensed or leased by the developer (currently not taxed). The Governor's proposal would either repeal the Department of Revenue regulation that distinguishes between a sale and a license of software or create an entirely new tax on revenues from software licensing.
If I were a company director, the first reaction would be to see if open source software exists to do the same job, and if it were cheaper to hire/contract to write inhouse software. Looks like this would hurt contractors/small companies than anything else.
Stupid is as stupid does (Score:3, Insightful)
Re:What exactly does "custom" mean... (Score:5, Insightful)
Re:Yeah right. (Score:3, Insightful)
Plenty of ambiguity -- good news for lawyers, bad news for business. Presumably they intend to figure out some long and complex definition of 'custom software' at a later date.
Re:What exactly does "custom" mean... (Score:3, Insightful)
Freedumb of speech is here, tax the planet.
why not tax everything? (Score:3, Insightful)
Re:Oh joy (Score:3, Insightful)
Businesses espically BIG businesses have no problem uprooting and and relocating to save money. Illinois is just trying to figure out how to get rid of those pesky businesses that pleague their cities.
This is a proposal drafted by someone that has no clue.
Re:The free/Free software (Score:5, Insightful)
Also most Custom Software doesn't bother with any sort of licensing basically as the programmer makes the code and sends it to the customer and they pay him for his hours the code is their they can do whatever they want with it.
Re:The third bullet in the article (Score:3, Insightful)
This is not a good thing if this resolution passes due to the cascade effect this may have on other "resellable" items.
So the service tax begins (Score:5, Insightful)
This is ridiculous... (Score:2, Insightful)
As both a resident of Illinois and a freelance developer, this doesn't look good. While my paying clients might not like having to fork over another 5 - 10% above their quoted price, this could absolutely destroy free software.
Here's the dangerous part:
(subject to service occupation tax on the value of tangible personal property transferred with the software) [emphasis mine]
The law is written so that the tax is applied to the value of software transferred - IOW, installing Linux on a client's computer could cost the customer $250 - 500 regardless of how much you actually paid for it. Should the Illinois Government use the Microsoft pricing model ($5000 for a server OS...), a developer who volunteers to help out a client by installing Linux on their server could end up owing the state $250 to $500 in sales taxes.
The biggest threat I see to this is the destruction of free software. Since the tax is charged on the value, rather than the price charged, even giving away custom software would impose a tax liability on the author.
And believe me, there are a lot of programmers in Illinois that will remember this when the elections come up. With the economic downturn, quite a few of us have had to resort to picking up side jobs for extra income - the last thing we need is a tax which would take away our business.
Re:The free/Free software (Score:5, Insightful)
That's because it's the very definition of a work for hire - the programmer is hired specifically to create that work on behalf of their employer. At the end of it, I think everyone would expect to own what they had paid to be created.
Re:S/W development will just move from Illinois (Score:3, Insightful)
Or $1,000,000 from Bangalore
Re:Ohio already taxes custom software (Score:4, Insightful)
There are still a significant number of politicians that want to see the information economy go away. Indiana is even worse in this regard. They have put tons of money in a dumb attempt to bring manufacturing jobs back and they leave in little things that give companies that could make real cash and create decent jobs major headaches.
If you are going to give out corporate welfare, at least give it out to people that could actually HELP you... jeesh.
Re:Yeah right. (Score:3, Insightful)
Congratulations! You just summed up the US income tax laws in a nutshell! If this passes, there'll be legions of lawyers, accountants, and politicians who do nothing but add more and more shit to this law ("an office suite, but not one used my more than 4 users, whatever"). IT'll become a rats-nest of laws that nobody other than people who spend 20 years studying it can understand. Very typical of US tax laws.
Custom Software Definition... (Score:3, Insightful)
Is a spreadsheet that contains data and calculates financial statistics 'custom software'?
Is a plug-in to a web browser 'custom software'?
Is an operating system that did not come pre-loaded on a computer 'custom software'?
Is any software that did not come pre-loaded on my computer 'custom software'?
Are those free AOL cds that you see everywhere 'custom software'?
Is TurboTax, the software I use to pay my taxes 'custom software'?
Is the website that I am running in my basement 'custom software'?
This legislation is WAY TOO VAGUE to get through... Stand up and make your voices heard Illinois voters!
Re:Welcome India (Score:3, Insightful)
I think that spooje is making a valid point albiet a left-handed one.
Many slashdotters attribute the off-shoring phenomenon to the greed of corporate MBAs but fail to give the tender mercies of our own government(s) proper credit.
How much of the added expense of keeping a US developer on payroll, vs an Indian developer on contract, is due to direct taxation (Social Security, Unemployment Insurance, Workmans Comp.) and indirect taxation that the employer and employee have to cover?
Re:The free/Free software (Score:2, Insightful)
This is also the case in Canada. Copyright belongs to the author. I've used it many times
the ailing state budget (Score:4, Insightful)
If I have a budget problem, I might try to charge my customers more; but I will probably cut back on what I do or choose cheaper suppliers.
How much money would the state save if it moved all its office systems from Microsoft to Linux ?
Re:I don't write custom software. (Score:3, Insightful)
Re:What exactly does "custom" mean... (Score:5, Insightful)
Generate?
There is no "generate" about it. I think the phrase he's searching for is: "hoping to take $64 million"
Re:How about custom duty on software from India? (Score:3, Insightful)
The whole issue of taxing "Custom Software" makes the assumption that it is untaxed. It is quite taxed so long as it is made in the USA. The Labor of the Employees makes it's cost nearly 70% tax.
The whole issue on a duty on software from anywhere else has to do with the disparity of the tax situations. To be most brief the Citizens of the USA are consigned by Congress to pay pretty high taxes. The purposes for these taxes include care of the elderly, national armed forces, various national purposes, and of course the US National Debt.
The load for retirement in the USA will approach 30% of gross payrolls in just 17 years. To allow Americans to carry all of these burdens and then to compel them to live in the "World Market" is national suicide. This will compel the workers to face ruin or to abandon the support of the various US National efforts and costs.
The concept that the USA should have to compete head to head even inside their own market against this situation forms a "Classic Trade War" against US Citizens by their own government. Essentially all players here should have to pay here. In addition mechanisms (WTO has prevented these) need to be developed to allow the Americans to lower their taxation for export markets so that they can trade world wide.
If a tax on imports is NOT imposed the only solution here is to remove the INCOME TAXES entirely and replace them with a National Sales Tax. Check out the Fair tax [fairtax.org] This allows much of this to be achieved.
This Is Ridiculous! (Score:2, Insightful)
There is no special tax for custom photograph/art frames.
There is no special tax for a custom paint job for a car.
AFAIK, there are no special taxes for custom anything, whether it's a good, service, or form of information.
So what makes software so different?
It isn't that bad (Score:3, Insightful)
Move along, nothing to see here.
Interesting news must be getting scarce.
Re:Yeah right. (Score:5, Insightful)
That's what has always bugged my about packaged software. According to the vendor, I don't own the software, I merely license it. If I don't own it, I didn't buy it. If I didn't buy it, then why am I paying sales tax on the "purchase"? If they argue that I own the media but not the contents, then why do I pay sales tax on the full amount and not just the portion of the sale related to the physical media?
Mildly off-topic, but it does relate...
Some history (Score:1, Insightful)
However, within just a few years, every one of these firms had left and relocated to California or elsewhere. Entire office parks, like sky harbor in Northbrook, and many of the office parks in highland park, the "heart" of silicon prarie, became completely deserted and desolate places, and the area has never recovered. With the eventual breakup of AT&T, even Bell Labs in Naperville is now lost, and I recall the big early contract companies, including EDS, long ago vacated Downers Grove.
The point being that rather than preserve and promote it's software industry, Illinios at one time choose to ignore it, and the result was that it lost the chance to be the third high tech corridor. Similarly, today, it looks like Illinois once again is choosing a path to further reduce it's potential economic development.
Re:Yeah right. (Score:1, Insightful)
Because you are purchasing a license to use the software. It's similar to music, movies, and other intangible goods. Why do slashdotters have such a hard time with this concept?
Understand the context (Score:5, Insightful)
This governor does not work in the state capital and instead spends all his time in Chicago because "he's got a family to raise, and he can't raise it in Springfield" (or something to that effect). So he spends lots of moola jetting back and forth.
The theory with Blagojevich is that he's positioning himself for a presidential bid in 2008 and is loathe to contradict his "populist roots" by imposing a tax on the "backs of the hard working men and women of Illinois."
In a sense, yeah, that's good. I can appreciate that. But the result of his fervent populism is a state government that's only a couple weeks away from a legislative break and is facing enormous pressure within the next two weeks to balance the budget and erase a 1.7 billion -- billion! -- dollar deficit from the state rolls.
He's in a tough spot, and because he's a union-guy and a guy's guy, Governor Sunshine has backed himself into a corner. The *only* things left are (a) massive taxes on businesses (bad for the state because we have lots of other states close by that would benefit from a business exodus from Illinois) or (b) gambling.
He's an odd bird, Blagojevich, and he's scraping -- literally, with a little plastic spatula -- the bottom of every barrel across the state to raise money.
Do I agree with what he's doing?
I'm not sure. I think Illinois government is in complete *disarray* -- lots of agencies are understaffed, for example -- but so long as he doesn't raise taxes on Ma and Pa, he's cool.
Welcome to American politics, I guess.
*shrug*
Re:Yeah right. (Score:3, Insightful)
hint: yes, you do.
'nuff said.
What about a spreadsheet (Score:5, Insightful)
Re:Welcome India... or Indiana? (Score:2, Insightful)
Then again, I'm sensing a typical slashdot response of... THIS IS AWFUL, HOW COULD THEY!... without any real knowledge of the situation, myself included. Do other states do this, and if so what percent. The headline is a bit misleading, he's not really talking about some special tax, he's basically saying software falls into a grey area because it's often licensed and leased rather than sold.
Given that I work for a company which leases software, I'm very curious to see where this goes.
Re:How about custom duty on software from India? (Score:3, Insightful)
And if those Indian programmers were developing that software on servers physically located in California, it would be much more difficult to figure customs duty...
Fucking Rowdy Roddie (Score:2, Insightful)
He's trying to:
Raid the coffers of private institutions and governing bodies.
When they deny him access to funds that he has NO right to touch, he tries to undermine them and replace them with structures that WILL allow him to steal those funds.
Trying to put a tax on everything in sight (the fucker's probably going to try to institue a BREATHING tax next).
He seems hell-bent on making Illinois completely and utterly unfriendly to any sort of business imaginable.
Then he'll cry about how his opponents are predecessors have driven those businesses out.
Rod Blagojevich....Front-Running Candidate for Retroactive Abortion.
Re:Sorry, you're wrong. But nice try. (Score:1, Insightful)