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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