Editorial: Computer services
New sources of revenue are always a tricky business for government — officials first have to get past that “new tax” hurdle.
What also makes the creation of new revenue streams a delicate topic is that no one wants to see the target for the new tax take too much of a hit.
Implementation of a new source of money deserves special watching, especially when to this point, it has largely been kept low key.
Case in point: the state’s new application of a 6.25 percent sales tax on computer service, networking, telecommunications and software services.
This revenue component was part of the Transportation Finance Bill that was vetoed by Gov. Deval Patrick — a veto then overridden by the Legislature — that also included a 3-cents per gallon increase in the gasoline tax and the $1 per pack hike in the cigarette tax.
Gasoline and tobacco got the headlines, but as of Wednesday, the state now requires software consultants too collect the tax if they perform “computer system design services and the modification, integration, enhancement, installation or configuration of standardized software.”
With this computer services tax, expected to bring in $150 million or more annually, Massachusetts finds itself in rare company — it’s now one of just four states that have such a tax, joining Hawaii, New Mexico and South Dakota.
Probably because it’s not your usual tax, there are plenty of concern voiced over the impact this computer services tax.
“This is the most sweeping software services tax in the nation,” charged Michael J. Widmer, Massachusetts Taxpayers Foundation president, who estimates that the tax could actually generate some $500 million. “This is not peripheral to the Massachusetts economy; this is central to our economic future. ... we could not have chosen a more perfect tax to undercut the Massachusetts economy.”
We’ve always found Widmer to be a man who carefully measures his words, so his take strikes us as a serious concern rather than hyperbole. And the MTF president is not alone in expressing dismay over the anticipated ill effects of the change.
Trying to calm nerves, the Department of Revenue released a statement that the tax will “not apply to personal or professional services that do not themselves constitute computer system design services or software modification services and that are not directly related to a particular systems integration project involving the sale of computer hardware or software.”
The Legislature, too, says its keeping an eye on what happens with this tax.
House Chairman of Ways and Means Brian Dempsey and Senate Chairman of Ways and Means Stephen Brewer wrote to the DOR: “Should the revenue or job impacts be greater than anticipated, or if the tax is imposed on vendors not intended, we will not hesitate to revisit these changes. We will remain vigilant as these changes to the sales tax are implemented to ensure that they have the impact we anticipate.”
If there’s room for interpretation that can hurt the Massachusetts economy, the time is now to tighten or rewrite the regulations.
Waiting may not allow for the damage to be undone.