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Maryland To Tax Custom Programming and Computer Services 395

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."
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Maryland To Tax Custom Programming and Computer Services

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  • by Anonymous Coward on Tuesday November 20, 2007 @06:50PM (#21428029)
    since companies have to pay a use tax for those cases
    • Maryland gets you coming or going. I wonder what those congresmen do to the hookers
    • by superwiz ( 655733 ) on Tuesday November 20, 2007 @07:32PM (#21428567) Journal
      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?
    • by nurb432 ( 527695 ) on Tuesday November 20, 2007 @08:12PM (#21429055) Homepage Journal
      But moving out of state is an option.

      • Re: (Score:3, Interesting)

        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: (Score:3, Interesting)

          by 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.
  • So... (Score:5, Insightful)

    by jacobcaz ( 91509 ) on Tuesday November 20, 2007 @06:50PM (#21428039) Homepage
    So, no more development companies opening up in Maryland then? Smart move MD!
    • Re:So... (Score:5, Insightful)

      by PocketPick ( 798123 ) on Tuesday November 20, 2007 @07:03PM (#21428237)
      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... (Score:5, Informative)

        by Stamen ( 745223 ) on Tuesday November 20, 2007 @07:09PM (#21428307)
        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.
        • Interesting...did not no that. In the state I'm from, typically sales taxes bis applied to any service where the goods provided has a sales tax. There are other services which are also subject to tax (it varies).
      • Re:So... (Score:5, Informative)

        by merreborn ( 853723 ) on Tuesday November 20, 2007 @07:15PM (#21428371) Journal

        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 [].

        Point being, some labor is untaxed in some parts of the country, so this development may come as a surprise to some of us.
        • "In California, repair and installation labor is non-taxable."

          It will probably be taxed sometime next year or the year after. The alternative is California having its' credit rating downgraded, because of the huge (10 billion bucks) [] shortfall in taxation revenue, which is likely to grow to approximately $30 billion by 2009, as the rest of the mortgage resets, foreclosures, and reposessions work their way through the system.

          • by eh2o ( 471262 )
            It's not the *only* alternative as there are lots of ways to tax things. Hopefully we won't be paying it off with a regressive tax such as sales tax, though that often seems to be the way things go...
            • Re: (Score:3, Interesting)

              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.

        • Well, yes, but...the reason it isn't taxed at point of sale is because the resulting income is taxed (pretty steeply, FWIW). It's only in low income tax states (like my home state, FWIW, so I'm advocating that my own taxes be raised) that a professional services tax makes sense.
    • Re:So... (Score:5, Insightful)

      by nick_davison ( 217681 ) on Tuesday November 20, 2007 @07:17PM (#21428383)
      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... (Score:4, Funny)

      by GateGuy ( 973596 ) on Tuesday November 20, 2007 @08:14PM (#21429083) Journal
      Maryland state motto...

      If you can dream it, we can tax it
  • by vertinox ( 846076 ) on Tuesday November 20, 2007 @06:52PM (#21428075)
    I don't see why this tax would do anything other than push computer related jobs out of the state and/or overseas.
  • by phorm ( 591458 ) on Tuesday November 20, 2007 @06:56PM (#21428147) Journal
    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?
    • by bahwi ( 43111 )
      Not everyone wants a permanent position, contractors are not necessarily unhappy or those who have been laid off, some of us do this for a living and enjoy it. It is a permanent job, just not for everyone. It's good bad, in which it changes the playing field and is bad in some circumstances, and good in others(permanent job). Unfortunately, I can't see it being very good because of 49 others states, india, russia, and others.
    • Overall it's bad for the programming sector in the US. Whether you prefer contracting or employment, it doesn't change the fact that it also encourages the companies to go overseas. Also, it encourages less programming in general. This is overall bad for the IT sector.
    • Re: (Score:3, Insightful)

      by 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
      • "The state of Maryland will lose the tax it used to receive from the work I did there."

        Sorry to reply to my own post, but this requires clarification. Simply being in Maryland and doing work meant that I'd be paying other taxes -- eating, buying supplies, etc. There was no direct sales tax on the work I did.
      • by funaho ( 42567 ) on Tuesday November 20, 2007 @09:32PM (#21429815) Homepage
        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: (Score:3, Interesting)

          by 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
    • Repeat after me:

      There is no such thing as a permanent job.

      Remove that phrase from your lexicon.

      Employment is at-will. Anyway, businesses come and go.

      Contracting is the way this industry is going and I think that is a good thing. Billing by the hour engenders more professionalism on both sides of the equation. Normally employers look at young engineers as a safety valve for inability to plan the project. They have no life, so we can wink/nudge them into working way past 40 hours. Billing by the hour, contrac
    • Because its just the tip of the iceberg. Small companies cannot afford in house staffs. As such they rely on others. This means that that whatever product they create, whatever service they provide, is now going to cost the citizens of MD more. The problem is that politicians have figured it out, people are too stupid to realize that no corporation pays taxes, they merely collect them for the government. Its called "embedded costs".

      So, when the politicians get the public fired up about companies making
  • by gelfling ( 6534 ) on Tuesday November 20, 2007 @06:57PM (#21428153) Homepage Journal
    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.
    • Um, no. The feds are in DC.

      And most programming shops in the area are in Northern Virginia. The few that are left in Maryland will move to Virginia, too.

      The only programming strength Maryland has is in Biotech, and there's no reason that can't move to Virginia, too.
      • No. A huge amount of the federal government, including just about all of the NIH, CIA are in MD. The parent poster is absolutely correct. There is also the "use tax" to be contemplated, the headline discussed hiring from other states (or countries) -- you can't get around sales tax that way. Frankly, it's a brilliant move by MD. They could even turn 5-15% of the revenue around into IT grants... bringing IT companies *into* MD. Sales tax is done on the purchaser, not on the seller.
        • by KlomDark ( 6370 )
          Yah, that always works, they never put money back into where they sucked it from (aka dont shit where you eat) - Here in Nebraska, they paid for this monstrous sports center in Lincoln with nothing but taxes on cigarettes. But guess what, even though smokers paid for the damn thing all by themselves, nobody is allowed to smoke there. What a steal from the poor (who tend to smoke more) and give to the rich (who tend to smoke less) scam that was.
          • by KlomDark ( 6370 )
            Oh, that probably sounded completely out of context. I was referring to where the parent message said "They could even turn 5-15% of the revenue around into IT grants... bringing IT companies *into* MD." - A great thought, but sadly it never works that way.
  • 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.

  • 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
    • Usually companies pay more for custom programming than they do for pre-packaged code, and they perceive themselves to be paying less for out-of-country programming. It's just another cost to hiring someone that companies won't want to pay.
  • by SputnikPanic ( 927985 ) on Tuesday November 20, 2007 @07:04PM (#21428251)
    ... 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.
    • by Detritus ( 11846 )
      They also doubled the tobacco tax to $2 per pack of cigarettes, another tax that disproportionately affects low and middle-income residents of Maryland.

      Who voted for these weasels? It wasn't me. Of course, the thought of cutting spending never entered their tiny little brains.

    • Call your representatives. And write them a letter.

      One of mine had a staffer to answer the phone, and she said she felt betrayed by her representative. She said "I don't know what they were thinking; it doesn't make any sense what they did". She urged me to write a letter.

      My other two representatives didn't have the balls to answer the phone.

      For the typical Maryland family, this tax will cost us about $1K-3K per year. Possibly less if you're at the poverty line, but then it hits you harder because you do
  • If the tax is being applied to services like computer programming, then it is no longer a 'sales' tax. It's effectively a income tax. No goods changed hands here, this is work for hire and services. What next for MD? 'Sales' taxes on mechanics and plumbers?

    To sum up, less attractive to business, higher cost of living, more of the economy goes underground and out of the tax system, precident of selecting specific service industries to be taxed at special rates and the corruption that will engender, and

    • Services do pay sales tax. I work in a restaurant, and it pays sales tax. Trust me on this one, I've had an accounting class.
  • daydreaming (Score:5, Funny)

    by oliphaunt ( 124016 ) on Tuesday November 20, 2007 @07:07PM (#21428287) Homepage
    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 ...
    • 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 ...

      Yes, well ... that's the thing isn't it. Nobody is saying that custom programming cannot be done via outsourced projects (I've done a few jobs that way and it's unlikely I'll ever do it again.) What is relevant is that States claim they want to keep good jobs in-state for their residents. I mean, those are the people whose best interests the Legislatures are suppos
  • Yay Maryland! (Score:5, Insightful)

    by Bluesman ( 104513 ) on Tuesday November 20, 2007 @07:08PM (#21428291) Homepage
    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?
    • by rm999 ( 775449 )
      I think you exaggerate, Maryland is one of the wealthiest states in the country. Ignore Baltimore, and it really is near the top. Taxes don't attract anyone to Baltimore (most people who depend on the services there were born and raised in Baltimore). But strong school systems and good government services do attract people who contribute to the state.

      Yes - taxes can hurt industry, but Maryland is doing great the way it is (ignoring Baltimore!)
      • Re:Yay Maryland! (Score:4, Insightful)

        by Bluesman ( 104513 ) on Tuesday November 20, 2007 @08:52PM (#21429469) Homepage
        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.

    • Maryland—Welcome to Canada!

  • Art. 10. That freedom of speech and debate, or proceedings in the Legislature, ought not to be impeached in any Court of Judicature.
    Art. 40. That the liberty of the press ought to be inviolably preserved; that every citizen of the State ought to be allowed to speak, write and publish his sentiments on all subjects, being responsible for the abuse of that privilege.
    • maybe Maryland took a cue from Bush, perhaps the Governor views the Maryland Constitution as just a piece of paper.
  • I can look out of my window and across the Inner Harbor to "Tide Pointe," which is supposed to be Baltimore's pride-and-joy "technology incubator." We also have a new "technology high school" somewhere in the city; a sexier term, I guess, than the old "Polytechnic" of yore. I guess the technologies--and the technologists-- will now be incubated in Delaware. Some friend sent me a list of fifty appropriate new state mottoes. Maryland's is now even more appropriate: "Maryland--if you can dream it, we can tax i
  • by athloi ( 1075845 ) on Tuesday November 20, 2007 @07:12PM (#21428339) Homepage Journal
    Hi, I'm in Maryland, and I'll cut your lawn for $25,000 and throw in a custom eCommerce system absolutely free!
  • It'll be a long time before the state feels the pain of this - its simply too good for them to pass up. MD is a host to many gov subcontractors that write *nothing but* custom code for projects. They'll feed off of the teat of subcommittee wins for those projects until nearby states figure out a way to coax those offices over the border. Probably to Delaware, which is traditionally business-friendly (although trending away).

    So frankly, this simply crunches the contractor work a bit. Many feel i
    • What I want to know is how does one define "customization" ? Macro? Shell script? showing someone how to download something? installing something? Eh...
      Pretty sure it would be anything not offered at a standardized price to general public as an already-developed product. Which begs the question, does Internet access modify your computer?
  • I think I shall start advertising in Maryland. Remote support (linux,windows), rsync backups, VPNs, Desktop support... NZ$ fees will look more attractive than when buying these services from other States, too.
  • Here in Illinois (Score:5, Insightful)

    by ScrewMaster ( 602015 ) on Tuesday November 20, 2007 @07:27PM (#21428509)
    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.
    • 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.

      Sort of like simcity, where you raise the tax the day before the end of the month.

  • You'll have to excuse my ignorance here, but in NZ we have GST (like many other countries) at 12.5% on all goods and services (with only a couple of exceptions), but naturally those who supply goods and services effectively do not pay the GST on the goods and services they procure during the course of the business activity as GST is a tax on the end-of-the-chain (the GST they paid to thier suppliers is deducted from the GST they recieved from thier customers before they remit it to the inland revenue).

    I wou
  • Michigan recently passed a law that, among a great many other things, also adds sales/service tax to any kind of out sourced IT work. The law is being reconsidered after the massive outcry from various other industries that also got hit by this nonsense. Michigan is by far the worst state in the union in terms of jobs and economics, and our idiot governor decides to pass legislation that makes businesses even less likely to grow and flourish in Michigan. I mean, who's going to contract to someone who has
  • If you freelance in maryland, do you now have to apply for a business license? I assume you have to collect the 6% tax yourself and pay it to the state quarterly, like you would do for sales tax as any other business... thing is you need a federal employee ID number to do that...

    What a giant pain in the ass...
  • Here in TN, we tax custom software. To the law, there's no difference between something I write, and going to the store and buying something off the shelf. Most of my clients are out of state, so it hardly matters, but it's a pain to deal with it every quarter. I had a friend who doesn't charge tax, the state went after him, and he got a judgement against the state (they had to pay him), so the laws aren't 100%.
  • The measure increases sales tax by 1% and adds computer support services, data center support, custom programming, consulting, and disaster recovery services to the list.

    Custom programming is one thing and that kind of a move would certainly make me leave the state. Computer Support Services, Data Center Support, and Disaster Recovery Services however are the big ones IMO. It looks like Best Buy is going to have to pay sales tax for the Geek Squad - which they probably were charging anyways. But what ab

  • I understand the rationale behind this - you have to pay tax on shrink-wrapped software, so why not custom software? Well, because custom software is a service is fundamentally a service, not a product. Yes, you can buy shrink-wrapped boiler plate legal documents, for which you are required to pay sales tax - does this mean we should pay a sales tax for legal services?

    My clients purchase my time as a service. As a side effect I may or may not create custom code for them, or improve their existing code ba
  • There's no sales tax.

  • In Connecticut, computer hardware or 'boxed' software is to be taxed at the standard 6% state sales tax, BUT computer services including everything EXCEPT web or email hosting or services related to web or email hosting are to be charged at 1%.

    Try THAT when creating an invoice with your average software!

    Oh... And while speaking to a CT Dept of Revenue "Services" rep, I was told that I could charge 6% for everything.

    Oh great. So, for my convenience, I can just overcharge my clients and give the extra c

  • Taxing services (Score:3, Insightful)

    by FreeBSD evangelist ( 873412 ) on Tuesday November 20, 2007 @11:39PM (#21430883)
    How far do you think a proposal to tax the services provided by lawyers would go?
    • Re: (Score:3, Interesting)

      by 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 (Score:3, Insightful)

    by kcdoodle ( 754976 ) on Wednesday November 21, 2007 @10:16AM (#21434261)
    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.

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