GloucesterTimes.com, Gloucester, MA

August 22, 2013

State lawmakers may reconsider tech tax

By Andy Metzger
State House News Service

---- — BOSTON — Facing a still-growing chorus of consternation from the business community, a member of the Democratic Senate leadership said that chamber could revisit the new tax on computer services, though he said the state would need to find new revenues to replace those lost.

“We need to look at it a lot more. Certainly a repeal is an option,” said Senate President Pro Tem Richard Moore, an Uxbridge Democrat. But if the tax is repealed or “put on the shelf,” then lawmakers will need to “figure out where we’re going to make up some of this certain amount of revenue,” Moore said.

In the $500 million tax package that went into effect July 31, lawmakers steered existing revenue streams to transportation and replenished the state’s general fund with tobacco taxes and a new application of the 6.25 percent sales tax on computer software design and network services. A 3-cent gas tax set to rise with inflation was also part of the package that passed both the House and Senate overwhelmingly despite a veto from Gov. Deval Patrick, who doubted it could be counted on to generate $800 million in new transportation money by 2018.

Republicans in the House and Senate, including state Senate Minority Leader Bruce Tarr, objected to the whole package and its individual constituents, arguing that transportation needs more money but the state could afford a funding boost without new taxes by initiating reforms and limiting spending growth in other areas.

Since the new tech tax went into effect, the Department of Revenue has issued guidance to programmers and businesses concerned about how it will apply to them, and efforts to repeal have gained steam among some lawmakers and members of the public seeking to put a repeal question to voters in 2014.

“It certainly, probably needed more vetting than it got. It was out there for six months; the governor proposed it; the Ways and Means committees, I think tried to narrow the definition, but it’s not an easy area of activity to clearly define, because there’s a lot of gray area and a lot of overlap,” said Moore, who voted for the overall tax package, along with all of the Senate Democrats and one Senate Republican. Moore said, “I think it might have been too complex a plan to try to put through as part of that package.”

Moore is not alone in expressing misgivings about the tax, which lawmakers estimated would raise $161 million annually, though Massachusetts Taxpayers Foundation President Michael Widmer claims it could raise as much as $500 million.

Sen. Karen Spilka, an Ashland Democrat who is running for Congress, announced plans to file repeal legislation, and her primary opponent in the special election, Sen. Will Brownsberger, of Belmont, weighed in on his website writing the tech tax is “not my preferred approach” and saying, “We are likely to try to take it up and make some adjustments in the fall.”

“Legislators should always be prepared to reconsider laws in order to improve them or fix unintended consequences,” said Sen. Katherine Clark, a Melrose Democrat who is also competing for a seat in Congress. “I stood up for increased transportation funding because we face crumbling infrastructure in need of important repairs and our continued economic growth depends on a 21st century transportation system. I am very open to repealing the software tax, but in order to prevent fare and toll increases we must simultaneously find a more progressive source of revenue to support our transportation needs.”

Moore also said the issue would be brought up before the Legislature stops holding formal sessions for the year in November.

“I think it’s going to be probably in the fall, because there is so much because there is so much concern how to know its potential impact on our economic recovery that we’ll take another look at it. Whether that will change it or not, I don’t know yet,” Moore said.

Sen. Linda Dorcena Forry, a Dorchester Democrat, told the News Service she now recognizes how the tech tax affects businesses, and said she would be “interested” to see the funding mechanism proposed to replace the $161 million.

“The question’s going to be: How do we make up that difference, right?” said Forry. “I do understand now, and this was something that was not quite clear, the impact that it would have on these computer businesses, and so I do think it’s important to really have them at the table and listen to them.”

Sen. Brian Joyce, a Milton Democrat, told the News Service he hoped to sift through the criticism and defense of the new tax to learn its true effect.

“Some of the information that we’ve heard from proponents and opponents of this tax simply doesn’t square. So I think that I, like most of my colleagues, will be revisiting the issue to ensure that our decision is fully informed and that we fully understand the ramifications,” said Joyce, Monday, before heading to a meeting with Widmer. “My concern is that there may be misinformation as to how extensive this tax is.”

Moore said the computer services tax had been in play since Patrick included similar language in his January budget proposal, which sought to lift taxes $1.9 billion, mostly through an income tax hike and the elimination of tax breaks.

“It’s not that it was a surprise, or should have been a surprise at any rate, because it was out there,” said Moore. He said, “I think there’s also a lot of confusion, partly because it took effect so quickly.”

The tax bill took effect a week after the Legislature’s override. Moore said the policy of coupling the gas tax to inflation was a greater focal point for critics, and argued that regular increases in the gas tax are smart policy.