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."

So...

[jacobcaz]

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

Its not that far of a drive to Deleware

[vertinox]

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

Why? Government jobs are onsite, that's why

[gelfling]

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.

Re:So...

[PocketPick]

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.

Idiocy like this...

[SputnikPanic]

... 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.

Yay Maryland!

[Bluesman]

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:So...

[nick_davison]

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.

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[account_deleted]

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Here in Illinois

[ScrewMaster]

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:This is awesome.

[superwiz]

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

Re:Idiocy like this...

[letxa2000]

They "take" from special interests, usually not from government coffers. I can't imagine how taxing labor is in the interest of either party, although it does sound like something Democrats would do due to their lack of understanding of economics. Republicans overspend because they're addicted. Democrats do it because they think it's actually a good idea.

Re:Idiocy like this...

[superwiz]

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:So is this good or bad for coders?

[Bluesman]

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 argued is that this money will be better off in hands of the Maryland government than being used to make Maryland business more productive. That's a judgement call. You can also argue that the higher tax will drive business out of Maryland and essentially provide little to no (or even a negative) revenue boost.

I used to do web development as a side job in Maryland for a few small businesses. They could pay very little, so I'd do for them what they could afford, and they were fairly happy with what I could provide. I was happy enough with what they could pay.

A 6% sales tax means that it's no longer worth it for me to do any work in Maryland. The companies I provided services to will be hard pressed to find someone who will work as cheaply as I did, so they'll likely keep going with what they've got, hoping it doesn't break substantially. The state of Maryland will lose the tax it used to receive from the work I did there.

While my individual contribution is a drop in the bucket, I'm sure this particular circumstance will repeat itself many times.

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

[smbarbour]

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 this is fair since Company A could be considered to be selling a product. If Company A ONLY does troubleshooting, they will still pay $31,000. Does this seem fair to you?

Re:Idiocy like this...

[Anonymous Coward]

They also doubled the tobacco tax to $2 per pack of cigarettes, another tax that disproportionately affects low and middle-income residents of Maryland.

I end up having to pay their medical bills, so fuck 'em. I hope it goes to five bucks a pack.

Re:Or just don't pay...

[trolltalk.com]

Perhaps the poster didn't express it properly, but part of the "social contract" that your tax-free programmer benefits from is:

1. meat and other food inspections;
2. a system of laws and courts;
3. police and fire protection, disaster relief;
4. roads, water and other infrastructure;
5. basic education;

Or we could have everyone do what you advocate, and stop paying taxes. Schools would close. Houses would be allowed to burn to the ground, whoever had the biggest gang would p0wn your shit, and could butt-rape your 5-year-old son (and you) without fear of any jail time, but that would be okay, because you'd be "stickin' it to da man!"

Sales taxes are a relatively fair consumption tax, because past a certain point, you don't have to buy stuff. Someone who buys a $6,000 Rolex will pay more sales tax than someone who buys a $9.99 WalMart WallyWatch. It also encourages saving, which, considering the negative saving rate over the last decade, is something that is needed.

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

[Unnngh!]

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.

Re:Yay Maryland!

[Bluesman]

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.

Re:Or just don't pay...

[sauge]

1. meat and other food inspections;
      2. a system of laws and courts;
      3. police and fire protection, disaster relief;
      4. roads, water and other infrastructure;
      5. basic education;

-----

1) Haven't been paying attention to the news with all the food poisoning, out-of-country dangerous foods, and recalls eh?

2) Two letters: O J

3) The fat cats always threaten the population with basics being effected. Meanwhile, the portion of the budget we don't see grows with the size of their offices and staffs. I have yet to see a city manager take a salary cap or reduction.

4) Tell that to Minnesota. Careful on the bridges.

5) Right now instead of using taxes, they are using private loans to pay those rising tuition rates.

We all rent from the government anyway. Try not paying your property taxes - you will find out who the landlord is real fast. Heck, they even tax the toilet paper you wipe your butt with around here.

But, we won't do anything until it finally all falls apart.

Re:Here in Illinois

[Bluesman]

"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 been educated in the Annapolis public school system and must have just squeaked by.

I guess you really can never attribute to malice what can be explained by incompetence.

Re:IOW

[FooAtWFU]

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:I don't get your arguments

[KudyardRipling]

It's OK to be generous with other people's money, but when it comes to their own bottm line...Gee...they are no different than Rush Limbaugh.

Taxing services

[FreeBSD evangelist]

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

Re:Another round of "Name that party"

[Anonymous Coward]

When there is only one party, it quickly ceases to matter which it is.

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

[lena_10326]

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, mechanics, plumbers, etc aren't taxed. In this scenario (which is the most common), there is never a point in which a programmer can say he or she has a completed product and then offer to sell it to XYZ corporation which triggers a taxable event (point of sale). The entire contract was a series of service sessions involving the assembly (not an ASM reference) of one line of code after another.

Authors do sell their books (ahem, documents), but they sell them to book publishers, and not to end users. Fine artists also create a product and sell directly to end users and I don't think they pay taxes, but that may be due to transactions being off the books. It's still not fair if they can get away with it while others can't. They only reason they can is that they're a small group not worth the government's time to bother with.

Services should be taxed at the same rate as hard goods. This is a first step for that state, but its really quite common elsewhere in the world, and known by other names

I don't think there's a right or wrong with taxation, only fair or unfair, consistent or inconsistent. If IT professionals and companies should be taxed for services, the all services should be taxed. However, I'd prefer all services to be untaxed and leave sales tax for goods consumable by end users; autos, electronics, music, shrink wrapped software, etc.

Even though I don't like sales tax, the only reason I'd ever support them is to capture income from illegal residents and tourists.

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

[lena_10326]

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.

Tax the lawyers

[kcdoodle]

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.