With Massachusetts poised to adopt a broad new tax on software services, the state’s technology sector is about to learn a hard lesson: Ignoring Beacon Hill carries a steep price.
The industry was practically absent from early discussions about including the tax in a transportation funding bill, a legislator involved in the tax bill said, and its largest and most prominent advocacy group, the Mass Technology Leadership Council, was not at the table opposing the tax.
“We heard precious little from the industry,” said Democratic Senator Stephen Brewer of Barre, chairman of the Senate Committee on Ways and Means. “There are people who could have weighed in earlier that we didn’t see.”
The tax was included in the transportation bill adopted by the House of Representatives Wednesday, with the Senate scheduled to vote Thursday.
Brewer and other lawmakers have been working on it for months. And even in the early days, when the proposal was much broader in scope and included data analytics and cloud computing, Brewer said, the technology sector did not come out against it in any significant way.
Now, with passage of the tax imminent, many tech companies and business groups are warning it could deal a crippling blow to the state’s innovation economy, one of its most important and celebrated sectors. But their complaints appear to be too late.
Andy Singleton, a longtime Boston technology entrepreneur and founder of Assembla Inc., a Needham software company, said he just learned about the new tax by reading news reports. When he contacted the Technology Leadership Council, he said, he was told the tax was not a priority for the organization, even though it represents more than 500 technology companies in Massachusetts.
“I thought that was a pretty poor response for something that is going to have a serious impact on the industry,” said Singleton, who has been a MassTLC member for about a decade.
The proposal would extend the state’s 6.25 percent sales to “computer system design services,” which covers a wide ranges of software and related services that businesses buy from programmers and third-party vendors.
Legislators estimate it would raise some $160 million a year for transportation projects. But many business organizations complain it is so broadly written that it would hit much harder — reaping as much as $500 million in total, with individual companies paying tens of thousands of dollars or more in taxes for routine updates of their systems.
The head of the Technology Council, Tom Hopcroft, said he did not come out strongly against the tax because, like many in the industry, he believed it was so broadly written it seemed impossible to know what effect it would have.
He also acknowledged the organization isn’t as active on Beacon Hill as it used to be.
“I’ve moved away from being a lobbying organization to being a member organization,” Hopcroft said.
“It’s not like we suddenly dropped policy. We are still present, we are still educating legislators.”
The transportation bill was first passed by the Legislature in June, but Governor Deval Patrick rejected it, saying it would not raise the $800 million he wanted. He sent it back to legislators with amendments, including one for a higher increase in the gas tax.
The House voted Wednesday without the higher gas tax sought by Patrick, so it’s unclear what his response would be if the Senate concurs.
But the portion that covers software services is not expected to change.
As for implementation, lawmakers have said the tax would be applied fairly, and that it is not out of line with how other states tax businesses.
They have also said they will monitor how the Department of Revenue applies the tax.
In many ways, the mere fact that the software tax became part of the transportation bill without much push-back reflects the changing nature and clout of the technology sector in Massachusetts. Once dominated by telecommunications giants and computer hardware makers on Route 128, the innovation economy is now populated with smaller software companies and Internet start-ups not as focused on policy matters as their predecessors were.
But if does have a major impact on the sector, it could be a wake-up call, Hopcroft said.
“If it ends up being interpreted in a way that has a large impact on the tech sector,” Hopcroft said, “a lot more people will pay attention to what [state legislators] are doing.”
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