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Technology tax hinders business productivity

Date: 9/6/2013

By Carley Dangona

WESTFIELD – The impact of the recently enacted technology tax has proven to be far more reaching than the Legislature anticipated; resulting in a firestorm of backlash calling for its repeal.

State Reps. Donald Humason (R-Westfield), Todd Smola (R-Palmer) and Nicholas Boldyga (R-Southwick) organized a series of roundtable discussions for companies negatively affected to voice concerns. The technology tax went into effect July 31, as part of the Transportation Finance Bill.

Ed Watson, CEO of Mobius Works, said. “It’s [researching the parameters of the tax] taking away from the time I should be spending to grow my business and develop my business. Instead, now I’m dealing with the taxation issue. I’m trying to figure out the impact of that is going to be on my business, rather than doing what I should be doing, which is going out and creating more jobs, which is something my company has done for the last five years when the economy was in the toilet.”

Humason explained that the Commonwealth received $625 million more in taxes in the previous fiscal year than expected and said that he sees no reason to continue the technology tax or to replace its revenue with another tax.

The bill states, “Pursuant to newly-enacted legislation, An Act Relative to Transportation Finance, St. 2013, c. 46 (“the Act”), which became law on July 24, 2013, Chapters 64H and 64I of the General Laws have been amended to apply the sales and use tax to certain services relating to computer system design and to modification, integration, enhancement, installation or configuration of standardized or prewritten software.”

In short, the 6.25 percent sales tax now applies to work done on computer software.

The event took place in the Lang Auditorium of the Westfield Athenaeum on Aug. 29. Smola and Boldyga were unable to attend, so Humason conducted the discussion. Only a handful of business owners attended, but all shared the same concerns.

Watson said, “What bothers me the most is that our industry as a whole has been a hallmark; in other words, if you look at what issues kept Massachusetts a little bit above the curve of what’s been going on nationally as far as the economy goes – we’re the saving grace of Massachusetts.”

Watson added that his company has already incurred increased expenses related to the tax because he now speaks with his accountant on a daily basis, whereas before, he would only use the accountant’s services during tax time.

“If I start losing business, I’m going to start modifying my business and go find revenue in other places. I’m not going to sit here and cry about what the government is doing; I’m going to something about it to ensure I maintain my revenue stream – but there’s no reason for it. We have a healthy, technology-based economy here in Massachusetts and it needs to be nurtured, not punished,” Watson said.

Humason explained that the House was told repeatedly that the goal of the tax was to collect $160 million in revenue for the Commonwealth. He called the service tax “onerous” and “not necessary.” He noted that the industry services customers all over the world and affects other industries that have integrated computerized systems such as the medical field, which is utilizing electronic prescriptions and records.

“Every time we do something like this, we create an atmosphere of uncertainty in our state,” Humason said. “We hurt anybody that is thinking about expanding their business or moving into the Commonwealth then says, ‘Whoa, let me hold off and see how this plays out.’”

He continued, “I haven’t heard anyone say ‘this is great.’ The best thing we can do [to alleviate the situation] is to repeal the tax. Other service agencies are nervous [that they too will face taxation].”

Tom Hanson, vice president of Operations at Whalley Computer Associates Inc., said, “I can’t think of an example where our business will increase. There’s no question it’s going to decrease [now that it’s subject to this tax],”

He said that the bill poorly defined what situations the industry is to collect the tax. “Software runs on computers and digital video recorders, automobiles, ATMs, cash registers, smart phones, medical equipment, defense systems, security systems, phone systems, gaming consoles and more,” Hanson outlined.

One of his main concerns regarded service quotes. Hanson explained that the increased cost of the quote caused by the new tax could be the deciding factor of whether or not a customer hires a company.

Item 15 in the frequently asked question section regarding the technology tax states, “Suppose a computer system is designed but not actually built, so software is never actually integrated with hardware. Are the services still subject to sales tax? No, the tax does not apply to design or consulting services that do not result in a sale of a computer system that integrates computer hardware, software or communication technologies.”

Hanson pointed out that this answer suggests companies would have to credit the sales tax to the customer if a system wasn’t purchased.