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Government Businesses The Almighty Buck IT

Massachusetts Enacts 6.25% Sales Tax On "Prewritten" Software Consulting 364

First time accepted submitter marshallr writes "Technical Information Release TIR 13-10 becomes effective in Massachusetts on July 31st, 2013. It requires software consultants to collect a 6.25% sales tax from their clients if they perform 'computer system design services and the modification, integration, enhancement, installation or configuration of standardized software.' TIR 13-10 was published to mass.gov on July 25th, 2013 to provide the public a few working days to review the release and make comments."
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Massachusetts Enacts 6.25% Sales Tax On "Prewritten" Software Consulting

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  • Wow (Score:5, Insightful)

    by DeathToBill ( 601486 ) on Monday July 29, 2013 @09:48AM (#44411653) Journal
    Six days from the announcement of a new tax to being required to collect it? Really? How many businesses can change their processes that quickly?
    • Re: (Score:2, Insightful)

      It takes me about 5 minutes to change all our software to a new tax rate and that's in 5 different software suite. If they're all such a great IT consulting firms, maybe they should be able to as well.
      • Re:Wow (Score:5, Insightful)

        by Penguinisto ( 415985 ) on Monday July 29, 2013 @10:21AM (#44411981) Journal

        It may take about 5 minutes to change tax rates in software, but I suspect it'll take a hell of a lot more than five minutes to update pricing policy, sales processes (and processing), to revise revenue/profit forecasts, modify forms (to point out this new tax, so you don't lump it in with generic sales tax), get the finance folks up to speed...

      • Re: (Score:2, Insightful)

        by Anonymous Coward

        So you changed the "configuration of standardized software"? Did you remember to pay the new tax?

      • Re:Wow (Score:5, Informative)

        by skids ( 119237 ) on Monday July 29, 2013 @10:53AM (#44412349) Homepage

        Note that this effects a bunch of freelancers that are used to providing an untaxed service, and so have no idea how to go about collecting sales taxes and sending the proceeds to the government, since all they did was collect check, report it as SE income, and pay the social security tax on it on a personal income tax form.

      • Re:Wow (Score:5, Insightful)

        by phantomfive ( 622387 ) on Monday July 29, 2013 @11:03AM (#44412429) Journal
        It's not changing the tax rate, it's introducing a new tax that was never there before. And that's even ignoring the fact that you'll need a lawyer to interpret the law, and decide which types of job will require the new tax, and which will not.
      • by Skapare ( 16644 )

        And did you do the necessary legal reviews and validate the process? Good software consulting includes establishing proper procedures like this. And these things involve a lot of people, including accountants and lawyers to be sure it is correct and strictly follows statutes and regulations. The lawyers are also going to need to read that gobble-de-gook and figure out when and where it applies and not, and your software has to handle that correctly based on customer profiles and such. This law change sh

    • How many businesses can change their processes that quickly?

      It won't be collected until the end of the tax year... just that you have to back-date it to the six-days-from-now mark.

      Of course, it's going to cost a lot of consulting firms a buttload of money they didn't anticipate (especially if the word "Oracle" is in the specs somewhere), but you know, the government needs their monies (for the children, old, and poor, naturally - though the funds' ultimate destination may differ slightly from what was promised.)

      • It won't be collected until the end of the tax year... just that you have to back-date it to the six-days-from-now mark.

        Not that I know squat about how sales taxes are collected in Massachusetts, but across the border in Vermont, you pay them, as I recall, quarterly and the amount isn't as much a problem as the fact that many clients -- schools, local governments, etc are tax exempt but you still need to report the sale and their tax exempt certificate number. Which means one more piece of data to collect

    • by cjm571 ( 2774139 )
      I remember hearing about this when it was first proposed, take a look at Sec. 7, Subsection AA below:
      http://www.mass.gov/bb/h1/fy14h1/os_14/h7.htm [mass.gov]

      The language there extends the tax to basically any software-related service you could possibly render. I find it surprising how hostile Mass. legislature seems to be towards the software industry, given the presence of MIT et al. and the countless tech startups that come out of these institutions.
    • Re:Wow (Score:5, Informative)

      by Chris Mattern ( 191822 ) on Monday July 29, 2013 @10:18AM (#44411947)

      It's not a new tax. 6.25% is the general sales tax in Massachusetts. This is just a ruling clarifying, "Yes, it applies to you guys too."

      • They could have clarified it even better by just making it work like VAT. It applies to everything but you get to subtract all expenses that VAT was payed on.

      • by Skapare ( 16644 )

        Then they could have just said that.

      • Right, it's probably like it is around here. Where you don't have to charge sales tax on consulting work, unless you produce something. So, drawing up designs for a garden wouldn't be taxable, but the moment the designers plant even one of those plants you're then required to pay sales tax on not just the planting, but the design work as well.

        I can see how this would be a bit ambiguous, if the law is anything like that in Massachusetts.

  • Not sure I see a problem with that. Afterall, a reseller is a reseller is a reseller. Seems to me that it encourages creativity and innovation in those who wish to avoid the tax.

    • by gstoddart ( 321705 ) on Monday July 29, 2013 @09:54AM (#44411731) Homepage

      It also applies to Open Source software. And, what if you're not a reseller -- "you buy Windows, and I'll install and configure it".

      Sadly, I'm just going to assume there will be all sorts of problems here -- because most of the time when lawmakers try to pass laws relating to technology, they fail miserably in their understanding of said technology and make a bigger mess of things.

      • by bws111 ( 1216812 )

        What does OSS have to do with anything? If you install, configure, etc software, and collect a fee for it, then you collect sales tax on that fee.

        This seems to be specifically closing the 'not a reseller' hole. If you ARE a reseller, then you are already collecting sales tax on the thing you sell (which includes your value add). This is making so you have to collect the sales tax on your service even if you are not 'selling' the system.

        It is no different than collecting taxes on any other service perform

        • Re: (Score:3, Informative)

          by sinthetek ( 678498 )

          It is no different than collecting taxes on any other service performed (eg cooking, barbering).

          To my knowledge most states don't tax for services (especially not as highly as sales are taxed). Have you ever heard of a musician or lawyer (or even your aforementioned chef or beautician) having to collect any sort of sales tax?

        • by TaoPhoenix ( 980487 ) <TaoPhoenix@yahoo.com> on Monday July 29, 2013 @01:38PM (#44414357) Journal

          No, this is a NASTY new tax.

          The huge case is when the software is cheap and it's all in the support!

          Typical examples are OEM/self bought Windows and Quickbooks. The raw software is pretty cheap - but the consulting could be thousands. So suddenly they want a *sales* tax on it? I already bought my software a month ago (for example). Now I have to pay a *sales tax* on a *service*?!

          Plus there are really evil clauses in accounting theory that kick in here. If these are "sales" and not "services", that's gonna have a colossal impact on the IRS Schedule C as someone else hinted at elsewhere. I think it changes if you can use Cash Based Accounting vs Accrual, and if you have Sales, you have the Inventory clauses kicking in.

  • Anyone hear of anything similar being considered in other states?

    • by gl4ss ( 559668 )

      elsewhere in the world it's pretty common. sales tax on sold services.. 6.25 is nothing.

      • Yeah, Finland for example, has between 10% and 14% VAT on all food, food services, services and culture (simply put) and 24% on products. The US should enact national VAT standards in three levels like Finland for example, IMO.
        • Re: (Score:2, Insightful)

          by Anonymous Coward

          The problem is that in the U.S. is that your probably already paying close to 8% sales tax (in my home town 15% on entertainment and liquor) and we don't get things like universal healthcare. Instead we get NSA spying and TARP (welfare for the rich).

          I truly don't have trouble paying taxes, however, he the U.S. sorrily lacks real statesmen that care about the country and are good stewards of our tax money. That's why so many people here demand lower taxes without any thought about the impact of things lik

    • Well, not here in Oregon.

      We'd need to have an actual sales tax first, which thankfully we don't have.

    • Sales Tax in Texas applies to most forms of computer consulting. And it is complex enough that almost everyone just charges it all the time...
  • ... on custom software?

    • I think the idea is that custom software incorporates at least 1 well paid white collar employee paying taxes, which is a preferable result for the state's economy to someone just installing some software and charging $X,000 for it.

      • by PPH ( 736903 )

        Welcome to teh Internets. Custom software may very well be coming from Bangalore, India. Yeah, sure. The custom stuff represents additional labor to write, over and above the cost of an off the shelf package. But there is no guarantee that the state will see one cent from its production.

        Back to the original question: If I commission the writing of a custom app in Massachusetts (from a local shop), what is the sales tax rate?

  • by Anonymous Coward on Monday July 29, 2013 @09:52AM (#44411711)

    If you've followed the Detroit saga, you'll know that many states have made deferred pension deals with their unions that are now coming due as the Boomers retire.

    Some states, such as Michigan have deferred liabilities of 241% of their annual revenue. Massachusetts is in the top 10 "bad" list (100%).(source of this is Moody's BTW, and this has been reported in The Economist)

    What this means is that retiree benefits will take up an ever expanding part of state expenditures, crowding out education, police, fire, parks, and other benefits that modern citizens have come to expect.

    So states are hungry for any revenue, Maryland for example, has set up a rain tax to tax people for the amount of rain that falls on their property (Maryland is in the top 10 "bad" list right next to Massachusetts), so the idea that they'd tax something in a completely arbitrary and crazy way will become the Normal.

    You're about to see a wave of municipal bankruptcies all across this country, and local taxes are about to go through the roof.

    Enjoy.

    • by gr8_phk ( 621180 ) on Monday July 29, 2013 @09:57AM (#44411753)
      From what I can tell part of the problem in Detroit is that the pension funds invested in city bonds - a financially stupid move. So now if the city defaults on its bonds the pension funds are screwed. Had those funds invested in something sensible the problem would not be nearly as dire for the pensioners.
      • From what I can tell part of the problem in Detroit is that the pension funds invested in city bonds - a financially stupid move.

        ...it gets even better. Those city bonds were financed by a tax base that has been busy running like hell off to other cities and states. I think Detroit's population has shrunk to only 1/4 of it's 1950's peak... and that's in spite of population growth overall. To top that off, the remaining 1/4 doesn't include the wealthier folks (who were likely among the first to pull the D-ring.)

    • I see you haven't noticed but politicians spend more, no matter what the tax rate.
      I trust you are consistent: The Titanic needs more icebergs, crackheads need more crack, Barbie needs bigger boobs.

    • by Impy the Impiuos Imp ( 442658 ) on Monday July 29, 2013 @10:00AM (#44411781) Journal

      States are spending more than ever. Cut off taxes and choke them seems to be the only way. See also the federal government.

      As for Detroit, politicians past promised future generations' money to support retirees, a very easy thing to do.

      We were warned about this. It is a vector to failure. I've just popped some popcorn over the whole thing. The reason these things are having problems is the math is identical to why the Ponzi scheme was made illegal -- charging current investors little or nothing in exchange for giving them the investmemt of future investors.

      These schemes just have the perversity of being able to force you to be an investor.

      • As for Detroit, politicians past promised future generations' money to support retirees, a very easy thing to do.

        Which is how pension funds are not supposed to be run in the first place. If you run a pension correctly it should work more like a 401(k) in that the money goes into an account that you then don't touch until a certain date. For large organizations you can calculate out how much you need to fund an employee's retirement long before they even retire. The government would actually be the best suited to pensions since they can build up enough of a buffer over time that they should effectively be immune to flu

        • by Penguinisto ( 415985 ) on Monday July 29, 2013 @11:20AM (#44412657) Journal

          The government would actually be the best suited to pensions since they can build up enough of a buffer over time that they should effectively be immune to fluctuations in the market and could eventually hit a point where they wouldn't even need to pay in to the pension accounts again. In short, bad fiscal management is the problem, no pensions themselves.

          Problem is, Detroit's government did run those pension plans... they had a nasty habit of pilfering them to fund city projects.

      • by dkleinsc ( 563838 ) on Monday July 29, 2013 @11:08AM (#44412495) Homepage

        States are spending more than ever.

        No they aren't [epi.org]

        It's interesting to see folks talking about "OMG, the government is spending so much!!!!" when in fact it's been dropping like a rock since about 2009-ish. What actually happened was pretty simple to understand: In the fall of 2008 the economy took a nose-dive, shrinking the GDP and causing a lot more people to qualify for SNAP and unemployment insurance and SS disability and TANF and Medicaid and a few other programs. The cost of those programs predictably skyrocketed despite no new laws passing. Since then, as fewer and fewer people have qualified, the costs have been shrinking. Meanwhile, all the budgetary belt-tightening that had happened elsewhere in the budget is still in effect, so in fact government spending is shrinking fairly rapidly.

        Also, tax revenue is the lowest it's been since 1941, so complaints about taxes being unusually high are also wrong.

        • by KingMotley ( 944240 ) on Monday July 29, 2013 @12:24PM (#44413323) Journal

          Also, tax revenue is the lowest it's been since 1941, so complaints about taxes being unusually high are also wrong.

          Not at the federal level. Government spending rarely goes down. In the past 60 years it's gone now in the following years:
          1954, 1955, 1965, 2010 and 2012. Every other year it's gone up. http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200 [taxpolicycenter.org]

          But perhaps, we should be talking about tax revenue, not spending since that is what was asked, and in the past 60 years, revenue has gone down in years: 1958,1959,1971,1983,2001,2002,2003,2008, and 2009.

          Better than gross revenue, it would be best to compare gross revenue adjusted for inflation per capita, but I don't have those numbers, but perhaps someone else does. Even better would be gross revenue adjusted for inflation paid per member of each income group, but again, I don't have those numbers.

          • Your chart in no way refutes my argument:
            1. The absolute numbers are misleading, because not only is the federal government getting larger in absolute terms, so is the population and GDP of the country. If you spent, say, $2 trillion to serve 200 million people, and now spend $3 trillion to serve 300 million people, is that really an increase?

            2. Federal spending is lower now in absolute dollars than it was in 2009 ($3173.4 billion in 2009 versus $3086.2 billion in 2013). If you instead go by percentage GDP,

      • Re: (Score:2, Interesting)

        by Ksevio ( 865461 )
        You're making the assumption that government spending is a bad thing. Massachusetts is doing much better economically than most other states while having top schools and infrastructure.
      • by Alomex ( 148003 )

        States are spending more than ever.

        Which is false, like most Republican talking points. Yet moderated 5 Interesting because it has truthiness to it: "yeah, we are paying too much taxes, [takes swig from beer]".

        States today are spending less than they did in 1990 if you consider local revenues only and the same as they did in 1974 if you add federal grants:

        http://www.brookings.edu/~/media/Research/Files/Articles/2012/12/state%20local%20budgets%20gordon/state%20local%20budgets%20gordon%20fig%201.jpg [brookings.edu]

    • There will be many bankruptcies. There will also be many municipalities and states that have avoided these problems. And you have control over it: leave the places that made bad choices and move to the places that made good choices.

    • by PeeAitchPee ( 712652 ) on Monday July 29, 2013 @10:08AM (#44411837)

      Maryland for example, has set up a rain tax to tax people for the amount of rain that falls on their property

      It's worse than that. As a Marylander (not for long because of this type of nonsense), I can also tell you that the rain tax, like most other taxes rammed through in the last five years or so, does NOT have to go towards saving the Chesapeake Bay (the justification used to pass it). The revenue goes into the state's general fund, where it is pissed away by the politicians to do things like give state loans to sports bars [baltimoresun.com]. This is a huge reason why states like CA, MD, and MA are destroying their tax bases as people and businesses flee by the millions to more tax-friendly states.

      • Re: (Score:2, Insightful)

        by Anonymous Coward

        California's population has been rising steadily for decades, and has increased by about 300,000 last year. Maryland and Massachusetts similarly have increasing populations.

        This is not people and businesses fleeing by the millions.

      • by dcw3 ( 649211 )

        Mod parent up.

        This is the reason I'm a former resident of the Socialist Republic of Maryland.

    • Detroit's problem is everyone left. Far less tax base then when all those pensioners retired. Only 3000 people paying into the retirement plan, and 9000 drawing out. With a much smaller population, you need fewer fire and police. Yet you still have to pay the police you used to need when there were more people living there. Detroit needs to rebuild so people move back and start paying taxes again.
      • by dcw3 ( 649211 )

        I grew up there. Detroit was, and still is one of the most segregated cities in the nation. People left for the suburbs to escape crime, crappy schools, and political mischief on the part of former mayors. The http://en.wikipedia.org/wiki/Renaissance_Center [wikipedia.org] was built back in 77 as a way to draw business back. The Lions and Pistons moved back, and casinos moved in. It's not enough though, and there's little that can be done now without flattening most of the blighted neighborhoods, and starting over.

    • by thaylin ( 555395 )
      Nice way to try and start start something there AC. The rain tax does not charge you for the amount of rain that falls on your property, but for how much surface area is impervious to taking in the rain water.
    • by roju ( 193642 ) on Monday July 29, 2013 @11:05AM (#44412471)

      The impervious surface fee actually makes a lot of sense, and isn't simply a "rain tax".

      Storm-water runoff is a negative externality that right now everyone in a community pays for regardless of their actual runoff. It's a tragedy of the commons - there's no incentive to minimize it. Charging a fee based on the area of impervious surface on a property converts that externality into a direct cost, rewarding those who minimize runoff and charging those who produce the most runoff more. A property owner need only replace impervious surfaces with pervious surfaces and they'll produce less runoff and pay less; everyone wins. It's the same idea as a carbon tax.

  • Comment removed based on user account deletion
    • Some of us disagree with the primacy of government as organizer of 1/3 of all existance.

      "Let us decide what we want government to do, and then just tax to that level."

      I would insert a .gif of someone eating popcorn if Slashdot were a bit more modern.

      Of course, their next impulse isn't to fix themselves -- instead they long for control over every locality so. there's no where to flee to . The "problem" is thet you still have the freedom to vote with your feet.

  • So why do they want to enforce making it more expensive to have secure computers ?

    Why only on computers ? why not a sales tax on for example plumbing ?
    Cause everyone needs to take a dump so should be a profitable tax.

    However since its only on standard software and open source is nonstandard
    I'm gonna presume its just a tax on those selling Microsoft software admin services.

  • The sales tax should be on the software, not on the additive consulting or installation or customization charges.

    Follow the money. Government just wants your money.

  • by odigity ( 266563 ) on Monday July 29, 2013 @10:20AM (#44411967)

    We're just over the border, and we promise not to pull any shit like this on you.

    Why? It's simple: http://freestateproject.org/

    • I used to work in MA and it was a wonderful day when I saw 0 under state income tax on my first NH pay stub.
    • The tax is on software consultation, not programming.
    • by bedroll ( 806612 )

      This is likely a maneuver against such tax-sheltering movements. By taxing consulting you remove some of the incentive to use consultants versus having in-house employees. Not much, but it's there. Chances are if your consultancy wants to do business with an MA company they will be subject to this tax on their services.

    • The tax isn't on programming. It is on the sale of software and the sale of servicing software. If you do everything in house in MA then you don't pay any tax. The whole point is to tax people working in NH, CA, and TX.
  • by techsoldaten ( 309296 ) on Monday July 29, 2013 @10:21AM (#44411983) Journal

    I think I know the origin of this tax bill and what it is intended for.

    Acquia - http://www.acquia.com/ [acquia.com] - is a large firm that specializes in Drupal. A lot of the work they do is around setting up, configuring and maintaining Drupal websites.

    While they don't produce the majority of the code that is in Drupal, they do provide a lot of services around it to consumers and other businesses. This is really a tax on VARs and other people who implement Drupal using their services.

    I am sure there are a lot of other companies that operate in a similar space. While I don't like it, I can see the potential revenues to be drawn in through such a tax.

    • ... While I don't like it, I can see the potential revenues to be drawn in through such a tax.

      Please make a distinction between "rational" and "good".

      "Rational" is when someone does something for a reason; in this case, we can "see" the reason as "getting more revenue".

      "Good" speaks more to the overall intelligence of the decision. The value of the decision in the future, or taking the whole situation into account.

      In this case, the decision is "rational", but not "good". It ignores the underlying problems of runaway government spending, oppressive regulation, and economic viability.

      Cities are failin

  • nuff said

  • This all sounds overly specific.

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