By Andy Metzger
State House News Service
BOSTON -- While drivers and smokers conversant in the doings of state government will have a fairly simple calculation for the added costs brought on by a $500 million tax bill, there is more confusion around how tax changes will affect providers and buyers of computer and network services.
"Even the Department of Revenue doesn't know exactly how this is going to work and what services it's going to affect," Rep. Randy Hunt, an East Sandwich Republican and certified public accountant, told the News Service. "I can guarantee there will be companies that don't collect it that later find out that they should have."
The law that went into effect Wednesday applies the state's 6.25 percent sales tax to business-to-business software design and network services -- but not data storage. Lawmakers are eyeing a new revenue source that Massachusetts Taxpayers Foundation President Michael Widmer has warned could generate $500 million, far more than the $161 million estimate lawmakers attached to their tax hike.
The DOR will take comments and plans to release additional guidelines about the tax.
After overriding a veto from Gov. Deval Patrick and in the face of criticism of the tax, Democratic House and Senate leaders wrote to the Department of Revenue, saying they "will not hesitate" to change the new law if the "revenue or job impacts" are "greater than anticipated.
Patrick, who favored a larger tax bill and included broader computer-service taxes in his proposal, told reporters Wednesday he doesn't believe the service tax will be as high as Widmer predicted.
Hunt sees the service sales tax opening the door for taxes on other services, an issue that roared to the forefront in the early 1990s when a newly elected Gov. William Weld helped block service taxes.
Hunt said the tax would apply to a vast swath of businesses, as so many pay others to custom-build websites, "back office" systems, and off-the-shelf software that is then customized to meet the needs of a particular hospital or other facility. The new 6.25 percent tax could have particular impact on businesses with slim profit margins, such as supermarkets that increasingly use technology to track customer purchases, Hunt said. In a state that prides itself on a high-tech economy, Hunt worried that Massachusetts firms will lose out to others because of the new service tax.
In May 2012, House Speaker Robert DeLeo attempted to woo Facebook founder Mark Zuckerberg back to Massachusetts, touting a new economic-development bill, which later passed into law. DeLeo spokesman Seth Gitell said the new computer-service tax would not dissuade technology companies.
The new tax has drawn sharp criticism from Charlie Baker, the one-time and potentially future Republican candidate for governor, and now the entrepreneur-in-residence at venture-capital firm General Catalyst Partners.
"I cannot believe MA is going to implement the most expansive tax on software services in the country -- at exactly the same time as this industry is poised to boom. I guess it will just boom elsewhere. Talk about stepping over a dollar to collect a dime," Baker wrote on Facebook.
Colleen Quinn contributed reporting.