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Techies gird for battle over new tax on software services

On Sales Tax Free Saturday, Red Mass. Group provides a good roundup on growing opposition to the new tax on software services - under which everybody from giant corporations to individual Web designers are now supposed to collect a tax every time they install or customize software for a client (including the cost of customizing open-source software).

State Sen. William Browsnberger wrote one constituent:

I have to confess that I share your concerns and have no better defense than: "It got by me."

Ed. conflict of interest note: As a side business, I install and configure Drupal Web sites. I currently have one Massachusetts client, so effective this month, I have to start charging them 6.25% in sales tax.

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Comments

How does the Commonwealth of Massachusetts justify this?! There is no sales tax on any other type of service! And why is computer software design service being singled out?! And this opens the door for the elected politicians of this state to start taxing other types of servicers like attorneys, plumbers and real estate brokers. And to top it off, it's tied into a transportation bill which has absolutely nothing to do with computer software design! Fucking ridiculous!

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Dependable Democratic voters like African Americans get hosed because the state Democratic Committee knows that they can do so with impunity. Same thing with techie recent college grads that vote on social issues. By the time they realize that they are voting against their own self interest, it's too late. When the waiter produces the tab for ObamaCare, people's heads are going to explode.

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After all, Texas is another of the states that taxes software services and I'm pretty sure they have a GOP-controlled legislature.

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Well, you would be wrong. You can just go see what the score is. Currently 19r/12d in the Texas senate. Not exactly a over whelming advantage. There are a lot of democrats it TX, broham. It's close to 50-50 (population wise). Just as there are a lot of republicans in MA.

Know what bugs me about party liners? They aren't smart. And they think they are the only ones out there. Truly a delusional crowd and really can take credit for most of man's problems. Rule of thumb for me: Is a person is democrat or republican - don't talk to them. They creep me out and should seek professional help.

You know who really loved their party and were willing to do anything for their glorious party leaders? The Nazis and communists. That's what you all look like to me. Fascist vs communist. God, people use to write Uncle Joe Stalin from their death prison gulags, informing him how bad it was, because they just thought he had no idea they were being so mean to people LoL Ahhh.... Ya... You guys are nuts to have faith in any political party.

One day, you will learn that a party slogan is really more of an advert. That they rarely deliver on their claims and are often selling something completely different.

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I wonder if this extends to other tech services. For example, I offer small business tech services. Virus Removal. Fix Computer issues. install software , stuff like that, General IT stuff.

Do I have to charge a tax now? Is this explicit to just web design or custom software?

(I really don't need any more tax issues these days...)

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If you install, configure, deploy and premade software you will have to charge sales tax on the time spent performing those tasks.

Technical support will not require you to charge tax, however you as well as I know that there is a blurred line between tech support and installing.

If you have to reinstall that copy of office, Antivirus, or backup software, you will have to collect tax.

Premade software is anything that you buy. Anything Microsoft, even cloud based software. If you resell email, or backup, your time spent setting the new users up is taxable.

That 10 hour server and active directory install? Taxable
Someone wants MS office installed? Taxable.
Install ITunes? Taxable.

I now see my server installs being billed as 20 min "install" and 8.8 hours of "tech support to figure out why it isn't working right"

This is a good resource: http://repealtheitservicetax.com/

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From the DOR's Guide to Sales & Use Tax:

Charges for personal or professional services:
Accounting, insurance, legal and medical services, as well as services such as haircuts and car repairs are not taxable.
Please note: Items sold in addition to services, such as a bottle of shampoo from a salon or parts for a car repair, are taxable and must be itemized separately on the bill. Massachusetts tax law treats some products as services and therefore exempts them from the sales tax. Other products, however, may combine taxable and nontaxable elements. Still other products, although labeled custom or a service, may not meet the legal definition for tax purposes.

So can't they just amend the law to say that the software that you purchase is taxed but the consulting fee that you charge to install and configure the set-up is not taxed? Shouldn't it be like going to the mechanic?

And this was a sort of compromise because everyone wet their pants when discussion of a large gas tax was discussed. It got cut back by the Legislature because they didn't want to be yelled at because "they raised taxes." But they still have to raise the revenue somewhere, so they go with this idea that just gets even more people pissed at them (mainly innovation-economy types that they love so much).

Don't understand what pols don't get: the anti-tax people will hate you no matter what you do. If you lower taxes they will complain that it is still too much of a burden. If you get rid of them entirely they'll complain that there needs to be more tax incentives to stimulate the economy. You can't win. So you might as well go ahead and do the job right and ensure that the services that govt provides leave little to complain about so people feel like they're getting their money's worth.

And then a million monkeys fly out my butt on typewriters writing Shakespeare...

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On software purchases.

They are doing this tax because not many people will understand it. The way it is presented in the news is that it will only effect high tech companies that design computer systems.

What people don't realize is that this means any technical work where someone installs, configs off the shelf software.

Truly shows how those making tax laws have no idea about the industries they tax.

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Well, politicians and legislators aren't known for being smart (amazing people actually let them decide anything, really).

In Florida, they just banned internet cafes. I know, that's stupid enough right there, but gets worse. The bill was so badly written, that is effectively banned computers in general. I have no idea if they bothered to fix it... They all probably just agreed to know it means internet cafes. Lazy and stupid in that case. God knows it will be abused 10 years down the road... But you don't expect them to think about 10 years later? I mean, that's like a million years!

I'm sure this will have it's dark side. Like updating Firefox browsers become taxable, and there's no such thing as freeware. In MA anyway.... The rest of the world will still have free updates for their free browsers... For a state that brags about being modern and trendy, they sure don't know how to spur tech jobs or businesses.

Welcome to idiocracy.

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This tax money is needed for transportation infrastructure... like running buses and fixing bridges. It isn't perfect.. so what.
It used to be that it was sufficient for states for tax purpose only to tax things that people buy; but now as we are in a more service based economy people are spending less on things and more on services. So the tax authority of the State needs to be expanded.

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For my personal clients.. I already pay income tax on it. So now I have to calculate sales tax too?

Its a money grab, plain and simple.

Taxachussetts at work....

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Taxachussetts gets thrown around, but we're right in the middle of the pack. We're also a small, dense, post industrial economy with huge infrastructure needs to keep the good (economic) times flowing here.

That said taxes aren't just funding vehicles, but also have incentives on investment and economic output.

The problem here is that Beacon Hill is filled which a bunch of spineless hacks that are afraid to make right choices and explain to their constituents why they were made. Instead, they find path of least resistance workaround, in places they think they can get away with it.

Instead of raising the gas tax more, and funding infrastructure from a general revenue stream like it should be; they scurrilously sulk away and hide trivial funding from an area they think they can get away with it. Should we be so surprised after what they did with the MBTA and Big Dig Debt?

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It isn't perfect?! It isn't close to perfect! It's an abortion! Raise the gas tax and/or install toll roads. I'd be willing to pay taxes on something remotely related to keeping the roads safe. In no way does a tax on computer software services correlate to keeping the roads safe. Go fuck yourself! You're a useless "anon".

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... raise the income tax a teeny bit.

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That the voodoo hex lady was carrying, fraudulently, when she sent that Globe truck airborne aren't going to pay for themselves you know!

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People riding bicycles don't contribute to transportation funding by paying gasoline taxes, so a tax on software services reaches a higher earning bicycling demographic. Don't hold your breath for legal services to get taxed!

Cambridge pushes transportation costs on the MBTA via parking maximums and road reductions/impediments, yet still collects full Chapter 90 funds despite lowered use of roads via their policies. The tax hits back at Cambridge.

On a related note, because the Legislature overrode Patrick's veto, he is getting back at them by not releasing the rest of the state Chapter 90 road maintenance funds to cities and towns. http://goo.gl/nWacnf

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Mark,

Property taxes pay for most road upkeep in this state. Bicycles cause no road wear. Even cars cause very little road wear. It is heavy trucks which really do in soft asphalt year round. Yet I have never seen you campaigning to tax the hell out of and regulate heavy trucks.

If the state and federal government forced long distance freight use specifically reinforced highways or rail freight with smaller lightweight trucks handling all local level distributorship then most of our roadways would remain in good condition for decades.

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a) probably 95% of cyclists also own and drive a car

b) the cyclists who don't own cars still pay property tax (or pay rent to someone who uses that rent towards property taxes), sales tax, income tax, etc. By many estimates the single largest domestic subsidy is car travel and your gas tax doesn't come close to covering that tab.

c) some portion of every dollar that leaves anyone's hand is paying to subsidize car travel in some capacity.

If I buy an apple, I'm buying the [taxed] gas that transported it from the farm to the wholesaler, from the wholesaler to the store. Further, I'm paying in part for your free parking at the store. Multiply that by every piece of food, every fabric, every single "thing" i will purchase in my lifetime. And then tell me because I chose to ride a bike to work today that i'm a freeloader. Get bent, we're all in this together, and just because you drive to work doesn't make you John Galt

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If you own a car and are not driving it, then you are not consuming gas in proportion to the distance you travel or paying the associated per gallon user fee (gas tax). BTW, diesel fuel is taxed at a higher rate (federal) than gasoline, which partially reflects the greater wear by vehicles most often using diesel fuel.

Besides gas taxes not covering costs of roads, MBTA fares don't cover costs either. So, you want them raised?

The amount of property taxes going to road maintenance varies greatly by community. Its often a pittance compared to property taxes going towards schools.

You do make a good point that increased gas taxes increases the cost of all goods and services people use. Its a regressive tax hurting the lowest incomes, just like raising MBTA fares would be. Meanwhile software service providers usually don't have the lowest incomes, so suffer less. Lawyers, starting at $200/hr. would be even less hurt by service taxing.

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What if you own a car, and drive it a lot, but don't buy any software services?

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Remember, just as heavier trucks do proportionally greater damage to the roads, bicycles which use no gasoline do basically no damage to the road relative to cars. A 175 lb rider + 25 lb bike is 200 lbs, compared to over 3,000 pounds of the average car. The ESAL (estimated single axle load) is approximately a 4th power of the weight per axle; so a bike does .00002 times the damage of a an average car (which in turn does a small fraction of the damage of a truck or bus).

I think that the amount paid in property, sales, and income taxes for upkeep of roads more than makes up for the lack of paying any gas taxes.

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Stop with the facts! All problems are attributable to bike lanes and sidewalk bulb-outs, and all your engineering, math, and critical thinking will get in the way of these rants.

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So let me get this straight.

If a client hires me to develop a website for them and,

1) I elect to develop the entire thing from scratch, then my time isn't taxed, but

2) I elect to build it on a FOSS CMS or Framework to develop it, then my time is taxed?

AYFKM? A tax on code reuse?

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That is right. Any software you purchase you are now to collect sales tax on any time installing and setting it up.

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God... Will you not be happy until nobody but Microsoft can afford to make the software? Even going after open source?

I'm temped to suggest we look at the financial ties of those proposing it. There may just be a conflict of interest... Like holding too much MS stock, while acting as a legislator.

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