On July 24, 2013, the Massachusetts Transportation Finance Bill became law and went into effect on July 31, 2013.
The Bill included a 6.25% sales and use tax on computer system design, modification, integration, installation and related services (“software modification services”). The tax applies to software modification services provided to users in Massachusetts.
Generally, providers of taxable services are required to register with the Massachusetts Department of Revenue (“DOR”), determine which services are taxable, and collect and remit the tax. In certain circumstances, users of taxable services are responsible for paying the tax.
Because the law is in effect now, and the penalties for failure to comply are severe, providers of potentially taxable services need to understand their obligations and consult with their tax professional about any questions they may have.
It is important to understand that, contrary to the perception that this is a tax on the technology industry, it is a tax on everyone who purchases technology services, which is to say everyone. For example, a restaurant owner who purchased customized point of sale software will be taxed as will any small business owner who hires a technology business to install or configure software.
It is also important to understand that, according to the Massachusetts Taxpayers Foundation, only four other states have comparable taxes and they have lower tax rates. As a consequence, this tax puts the Commonwealth at a competitive disadvantage with other states, some of which offer tax incentives rather than taxes.
In response to the adoption of the legislation, the DOR has attempted to clarify the application of the tax. The DOR has issued TIR 13-10, a technical information release, available at: http://www.mass.gov/dor/businesses/help-and-resources/legal-library/tirs/tirs-by-years/2013-releases/tir-13-10.html.
In addition, the DOR also has a list of frequently asked questions, available at: http://www.mass.gov/dor/docs/dor/law-changes/faqss-computer-software-2013.pdf. The DOR has been adding questions to the FAQs on a regular basis, so it is a good idea to keep checking the list.
Reaction of the Business Community
The Cape Cod Technology Council opposed the tax and communicated its opposition to the tax to the Cape’s legislative delegation. There is a broad coalition forming against the tax including the Massachusetts Taxpayers Foundation, the North Shore Chamber of Commerce, the Cape Cod Technology Council, the Massachusetts High Technology Council, and other organizations.
On August 7, 2013, a citizens’ petition was filed to place a referendum on the ballot in 2014 to repeal the tax. Businesses that oppose the tax can support the referendum effort. In the meantime, businesses can contact the state representatives and senators to express their experiences with the tax or their opposition to the tax.
In addition, the Massachusetts Department of Revenue is seeking comments on the legislation, which can be provided at: firstname.lastname@example.org.
For additional information, see: http://www.cctechcouncil.org/; http://repealtheitservicetax.com/; and http://www.masstaxpayers.org/publications/public_finance/budget/fy_2014/20130807/business_leaders_file_ballot_petition_repeal_sof.