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Tax Hikes, Sales Tax on Computer Services
April 24, 2013
To: Members of the General Court
Re: Tax hikes, Sales Tax on computer services
April 24, 2013
While you’re preparing to begin applying
the sales tax to services with an obscure new sales tax on computer
services that no one seems to understand, let us share our institutional
memory with you about the last time the Legislature tried this, to its
embarrassment.
July 1990. A year after promising voters
that the income tax rate hike from 5% to 5.75% would be “temporary,” a
conference committee recommended raising it to 6.25 percent. In the same
tax package, a new tax on services was created. Legislators were told it
would apply only to “professional” services (legal, accounting,
engineering and architectural) paid mostly by “the rich.”
The package passed quickly, before
research could be done; it was set to go into effect early in 1991.
Before that date, conservative Democrat Greg Sullivan (later Inspector
General), went to the House floor with the list of the services that
would actually be taxed. As I recall, he rolled it out on a long paper
scroll that touched said floor. Much to the surprise of those who’d
voted for it, the sales tax actually applied to every service
imaginable, from arbor planting to zoo feedings, including lawn mowing,
haircuts, paper delivery and veterinarian bills for injured puppies.
A few legislators rightfully lost their
jobs over that in November, and new Governor Bill Weld had no trouble
getting a vote to repeal the entire service tax before it went into
effect.
So you might want to learn more about the
sales tax on computer services before your final vote on it. An example
of a service that would be taxed seems to be providing software to help
a company automate the collection and archiving of laboratory data.
You’re creating a new tax on collecting
lab data that could cure cancer? Really?
What’s the impact on those businesses
when Obamacare with all its new record-keeping requirements kicks in?
One small businessman told me: “During
the current depression, I've already had to discount my normal rates in
order to get work. Accordingly, if I invoice my customer for $10,000,
I'd have to pay the state $625. In other words, the sales tax will act
as a 31.25% income surtax on my $2,000 profit. This would be
devastating…
“It is even worse. As I understand the
legislation as passed by the House and Senate, if I subcontract a
portion of the project to another consultant I would have to pay a
double sales tax on the amount of the subcontract. For example, suppose
the consultant invoices me for $5,000. As I read the legislation, I
would have to pay the state an additional $313 in sales tax on that
$5,000 invoice from the sub- contractor which would bring the effective
income surtax on this hypothetical project to almost 47%.
“If this legislation becomes law, I will
no longer be able to work as a computer consultant in this state. I
guess I would either have to apply for Mass Health, EBT, fuel
assistance, housing subsidy, etc.”
Hey, Mr. Small-business, if welfare
benefits are good enough for prospective terrorists, they’re good enough
for you.
We’re sensing serious voter disgust out here, legislators. “Follow the
Leader” may not be the best game-plan this time.
Citizens for Limited Taxation ▪ PO
Box 1147 ▪ Marblehead, MA 01945
▪ 508-915-3665