Democratic state Senator Karen Spilka filed a bill to repeal the recently enacted software services tax that has triggered an uproar within the Massachusetts technology community.
Her bill appears to be the first reaction by a state official to the tax, which was included in a transportation funding package that the Democratic-controlled Legislature overwhelmingly supported just last month.
In seeking to repeal the new tax, Spilka proposed asking a newly established state Tax Fairness Commission to find alternatives to raising the $160 million that the software tax is intended to yield annually.
“We have all been heralding that we are in an innovation economy in Massachusetts,” said Spilka, who represents parts of Middlesex and Norfolk counties where many tech firms are located. “It appears to me this is the opposite direction that we, as a tech hub, want to be going.”
Spilka voted in favor of the $800 million transportation finance bill that included the software tax and admits that she didn’t object to the tax when it was being considered. The bill also raised taxes on gas and cigarettes.
“This wasn’t on people’s radar screens,” said Spilka, who is running to fill Edward Markey’s recently vacated seat in the US House of Representatives. But she said she was filing the legislation because so many of her constituents complained about it.
Within days of its passage, the new tax quickly earned tremendous notoriety within the business community. The measure applies the state’s 6.25 percent sales tax to a variety of computer software related services, including such common business practices as modifying off-the-shelf software, configuring programs, and designing or developing websites.
While the Massachusetts Department of Revenue is still defining the scope of the new tax, technology and other business executives complain it is already so far-reaching that it will stifle a key, growing portion of the state’s economy.
A group led by executives of some of the state’s biggest companies earlier this month said it would ask Massachusetts voters to repeal the tax on the November 2014 ballot, while more than 1,600 people have signed a petition on the website Change.org asking the Legislature to undo the tax.
Several other websites such as Repeal the IT Service Tax have cropped up in recent weeks, asking people to continue calling state lawmakers and “give them no rest until this tax is repealed.”
Carl Rubin, president of a small Needham technology consulting firm, has called or met with several state representatives to complain about the tax. He has also thrown his support behind the ballot initiative, and is working with the Massachusetts Innovation and Technology Exchange, an industry group, to oppose the tax.
The tax even led Florida’s Republican governor, Rick Scott, to send letters to Massachusetts businesses to encourage them to move south.
Many state Democrats have defended the tax as necessary to raise needed funds to help improve transportation. The Patrick administration has also repeatedly supported it, saying the technology sector also needs to support transportation since it is vital for commerce in Massachusetts.
While Beacon Hill has said the tax will collect $160 million in annual revenue, business groups say it is so broad that it will amount to a $500 million annual tax burden on Massachusetts companies.
Republicans on Beacon Hill have been outspoken against the software tax, and the rest of the transportation bill, since it was introduced this year.
“We’re attacking the heart of our economy,” said Brad Jones, the Republican leader in the state House of Representatives. And if Beacon Hill lawmakers held more hearings on the software tax, he said, “maybe some people would have been able to come forward and say that this bill is really onerous.”
Republicans would support any effort to repeal the tax, whether it comes from legislation or the ballot box, but Jones derided Spilka for moving to repeal a bill that she previously supported.
“She’s running for Congress,” Jones said.
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