Politics & Government

Lawmakers Unsure What New Tech Tax Will Actually Tax

A new state sales tax went into effect July 31, but lawmakers don't know what exactly is included.

By Bret Silverberg

Are you about to pay taxes on computer services? No one is really sure, including the Massachusetts Department of Revenue.

State House and Senate legislators, after months of wrangling, passed a $500 million transportation finance bill into law via a veto override vote on July 24. The law includes a new sales tax on technology and computer software-based transactions.

The new tax is expected to generate $161 million, or slightly less than a third of the total revenue raised. And no one knows how this tax will work.

What technology? What services? Which vendors? Which customers? Those details were not included in the approved legislation.

The Details

A Department of Revenue technical information release defines the new addition to sales tax as:

"'Computer system design services’, the planning, consulting or designing of computer systems that integrate computer hardware, software or communication technologies and are provided by a vendor or a third party.”

The document goes on to define “services” as: “telecommunications services, computer system design services and the modification, integration, enhancement, installation or configuration of standardized software.”

Got that?

A vendor must now collect the state's 6.25 percent tax on the above. But even state lawmakers who wrote the bill can’t explain what the legalese above means.

Setting Definitions on the Fly

Ann Dufresne, director of communications for the Department of Revenue, said the department is working to determine who is impacted by the new law.

"We're getting to the nitty gritty now," she said.

Dufresne added that tax return filings are not due until the 20th of the month, so those who find that they're accountable for the new addition to sales tax have some time before they have to file.

The Department of Revenue is soliciting comments and feedback from those who will be impacted by the new law and will publish a Frequently Asked Questions fact sheet on the Department of Revenue website as early as Wednesday.

Dufresne said the Department of Revenue will issue amendments on sales tax regulations for the computer industry within three months.

Tax Watchdogs Wary of Vague Wording

When asked how the tax is supposed to work, Barbara Anderson was blunt.

“I have no idea because they have no idea,” she said.

Anderson is executive director of the Citizens for Limited Taxation and is well known in Massachusetts for leading the fight to implement Proposition 2 1/2 back in the early 1980s. According to Anderson, small business owners were told tech-based businesses will be taxed on the total earned gross of a project, not simply the product the owner uses to complete the project.

On a $10,000 project, the vendor would be taxed $625, she said—a point underscored in a comment on a recent Boston.com story, which cites a lack of outcry from the Massachusetts tech community.

Anderson said her organization has been trying to get specifics about the tech tax since the State House debate began. She has come up empty.

Anderson said she has heard that legislators seek to “tax the cloud,” which has extremely vague application.

“One of these [types of] companies isn’t very well defined,” she said. “It’s taxing the cloud, as if they know what the cloud is.”

Who Won't Get Taxed

The document lists other exceptions from applying the tax, which are typical of other sales tax applications, according to Dufresne.

If, for example, a purchaser of services can prove “multiple points of use” outside of Massachusetts, the purchases will not be on the hook for the Massachusetts sales tax. In other words, if the purchaser is not sourced in Massachusetts, Massachusetts state sales tax should not apply.


Get more local news delivered straight to your inbox. Sign up for free Patch newsletters and alerts.

We’ve removed the ability to reply as we work to make improvements. Learn more here