GloucesterTimes.com, Gloucester, MA

September 10, 2013

Tarr, Hill step up push to repeal tech tax

From Wire and Staff Reports
Gloucester Daily Times

---- — BOSTON — Gloucester State Sen. Bruce Tarr and other Republican legislative leaders said Monday that finding a new revenue source to replace the estimated $161 million that would be lost by repealing a tax on software services is not necessary, and trying to fix the controversial new tax won’t work.

Over two dozen House and Senate Republicans, including Tarr and Brad Hill, the Ipswich representative whose district includes the town of Manchester, called for the repeal of the new computer and software design services tax at the offices of a South End technology company, releasing a draft of legislation that will be filed this week mirroring the proposed 2014 ballot question to repeal the tax.

Tarr and House Minority Leader Brad Jones spoke for their Republican colleagues alongside John Grayson, the CEO and president of Genuine Interactive, a software design firm specializing in brand advancement, web design and interactive kiosk development.

“We can’t afford to penalize innovation and job creation in one of the state’s most promising sectors if we hope to have the kind of robust economic recovery that creates the jobs people need and the tax revenue state government depends on,” said Tarr. “The time is now to change course from increasing taxes on productivity and focus on creating a climate for job growth and reform and efficiency in our state’s operations.”

Hill said he felt the tax “has been a boondoggle since its inception.”

“It was so broadly written that the Mass Department of Revenue cannot even explain to our businesses how it will be implemented,” Hill said. “At no time should the legislature have approved a tax without first meeting with the businesses and citizens it would affect and more importantly not know the true ramifications of loss business that would follow should it be passed.

Though no Democrats attended the conference, Tarr said he is optimistic of winning support and co-sponsors from across the aisle, where many Democrats have also expressed concern about the software services tax.

Gov. Deval Patrick has said any discussion of revisiting the tax must be accompanied by ideas to replace the lost revenue counted upon to finance his administration’s transportation agenda, including upkeep of the MBTA and highway systems and targeted expansion projects.

Republicans say the lost revenue could be found through savings-minded government reforms, future gaming revenues, the legalization of online gaming or other mechanisms that don’t require raising taxes. Tarr even suggested he would be open to tapping into the state’s main reserve fund if an “insurance policy” was necessary.

The Republican leaders plan to file a bill that would exempt the newly taxed software services from the state’s 6.25 percent sales tax, retroactive to July 31 when the new law took effect. Tarr called the tax “misguided and destructive,” and Jones warned of a slippery slope toward the taxation of other professional services.

“You may be next when the powers that be on Beacon Hill decide they more revenue,” Jones said.

In defense of the tax, Democrats in the Legislature have said revenues from the new tax will pay for investments in education and local aid. The tax was included as part of a $500 million new revenue package for transportation investment, and leaders promised to limit the scope of the tax if it produces more than the estimated $161 million.

Grayson said that the new law has created such confusion about what will be taxed that he had to freeze invoices after its passage to wait for clarification from the Department of Revenue and determine how to bill clients.

For a business that operates on a monthly cash flow, Grayson said, billing delays have created financial problems for his company that won’t go away when he is required to remit taxes to the state on Sept. 20 but has yet to receive the payment from clients.

“When Rep. Jones used the word ‘disaster,’ I think that’s an understatement,” Grayson said.

Some groups, like the Massachusetts Taxpayers Foundation, have suggested the tax could net as much as $500 million from businesses purchasing software. The foundation published a study on Monday detailing the Massachusetts tech tax as the broadest and highest tax on software services in the country.

“When folks tell you this tax is limited and it’s confined, it’s neither of those things. And when we tell you that it’s destructive, we have plenty of evidence to back it up,” Tarr said.