, Gloucester, MA

July 8, 2013

Tech service sales tax measure drawing questions

By Alan Burke
Staff writer

---- — A bill designed to raise $500 million in new taxes for the state includes a controversial tax on some computer transactions — a measure that critics say could devastate businesses, but one that supporters insist is nothing to worry about.

As of Friday, the bill had been passed by the Legislature and was sitting on Gov. Deval Patrick’s desk awaiting his signature. The bill hasn’t been signed because the governor thinks it fails to increase the gas tax enough (it boosts the tax by 3 cents, with the increase tied to inflation) to compensate for revenues likely to be lost when some Turnpike tolls are eliminated.

The bill also increases taxes on tobacco products, but the most controversial part of the bill would extend the state’s 6.25 percent sales tax to a variety of technological services.

“Nobody knows what this bill will do,” said tax activist Barbara Anderson of Marblehead, who raised the alarm earlier this year.

But Rep. John Keenan, D-Salem, who voted for the measure, said criticisms of the tax on computer transactions are unmerited.

“Almost 30 other states have a similar tax,” he noted. “It is not intended to be a tax on computer services.”

Importantly, Keenan said, the tax leaves the average consumer out of the mix. It doesn’t tax repairs on your home computer, for example, and it won’t be levied when you upgrade your PC with a second hard drive. Nor does it tax so-called “cloud services.”

Instead, he said, the tax will impact computer system design and is aimed more at businesses. “This is a tax on computer products,” said Keenan. “If someone is working on software for you and they upgrade it. ... If someone is creating a new product for you, yeah, you would pay a tax on that.” He expects the measure to earn the state about $100 million.

Keenan said he’s heard from constituents in the computer business inquiring about the law, but stresses the intention is to ease the impact on computer-centered businesses. “Technology is important to our economy,” he said.

Asked if he would be sympathetic to the governor’s plea for more money, Keenan said, “We did everything we thought we could ... in this rather difficult economy.” Much of the new tax money is aimed at covering the state’s transportation costs.

Anderson, however, has less patience with Patrick’s complaints. “The last I heard he was sulking,” she said.

Anderson compares the new tax to a nearly disastrous tax on services passed by the Michael Dukakis administration in the 1990s, but overturned under Gov. William Weld before it could even go into effect. Yet, as she signaled concern about the impact of the computer tax as early as April, she got no response from the business community until it was set to pass. Michael Widmer of the Massachusetts Taxpayer Foundation, a business group, then called it the worst tax he’d seen in 20 years.

“It could have a devastating impact,” Anderson said. “Nobody knows how it works.” In two years, Anderson predicted, multiple businesses will have to close or leave the state, and “they’ll all be saying, ‘Oh, my God, how did this happen?’”

The regret could start, she indicated, about the time cancer researchers realize they have to pay a tax to upgrade their databases.

Anderson shrugs off Keenan’s explanations, suggesting that as concerns are rising about the impact of the tax. Legislative leaders are putting out talking points to feed to reporters.

”They’re saying what someone told them to say,” she suggested. They won’t really know what the bill does, she said, until it’s put into effect.

Alan Burke may be contacted at