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The Boston Globe

Business

Governor Patrick calls for ending new tech tax

Governor Deval Patrick abruptly changed course Tuesday and said he no longer supports a controversial new tax on computer software services that has triggered a fierce backlash from the state’s technology community and spawned numerous attempts to repeal it.

While mostly silent in the weeks since the tax was adopted by the state Legislature, Patrick said Tuesday that after hearing complaints about it directly from technology executives, he concluded the new tax had become “a serious blot.”

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“It’s time for it to go,” he said in an interview with the Globe. “I’m persuaded that the impact to our reputation is too problematic. We’ve worked really, really hard to establish ourselves as an innovation hub in the world, and we ought not do anything that compromises that.”

Patrick himself originally proposed the computer software tax back in January to help pay for major improvements to the state’s crumbling transportation systems. But it received little notice in the months of debate on Beacon Hill as he and legislative leaders instead wrangled over other issues, such as the gas tax and highway tolls.

One of the executives who met with Patrick last week welcomed his new position.

“He’s taking the right position. He sees the reputational problem that Massachusetts faces by targeting the tech industry,” said Andy Singleton, president of Assembla Inc. of Needham. “Almost everyone who has looked closely at this law now realizes it’s a bad law. Everyone realizes the tax needs to be repealed. It can’t be replaced.”

Singleton had been among the most vocal members of the technology community over the tax. Within days of its passage, many executives said they had no idea lawmakers were even considering it and complained they felt blindsided by a political establishment that often touts their industry as a cornerstone of the Massachusetts economy.

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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 developing websites.

People in technology companies complained that it was so broadly written that it would end up taxing many services that had become key to Massachusetts’ economic growth, and would cost businesses far more than the $160 million annually estimated by the state.

With employees at smaller tech start-ups deploying social media tools to broaden the opposition, a coalition of leaders from large companies, including the heads of Staples Inc. and Boston Scientific Corp., launched a ballot initiative to ask voters to repeal the tax in the 2014 statewide election. Several lawmakers had also filed bills to repeal it.

A turning point in the nascent revolt appeared to come last week, when Patrick and legislative leaders agreed to meet with several technology executives and other business leaders to hear their complaints about the tax. Before the meeting, Patrick said he would be in listening mode; afterward, he did not comment at all. Until Tuesday.

At an event in Worcester, Patrick said in separate remarks to reporters that “we had a really good meeting last week,” and that after concluding the tax has become too onerous, “the hard part now is to figure out what to replace it with,” according to a transcript provided by his office.

Additionally he told the Globe that the meeting with tech executives provided him with a better understanding of the “complexities and some unforeseen consequences” associated with the tax.

Patrick’s economic development chief, Greg Bialecki, said the governor is not calling for a new broad-based tax to replace the computer software levy, but will work with the Legislature to identify other means to pay for transportation projects.

Seth Gitell, a DeLeo spokesman, declined to comment on Patrick’s shift on the tax and referred instead to a joint statement the speaker and Senate President Therese Murray released after Patrick met with business leaders last week.

“We engaged in a very thoughtful and informative discussion with a number of business leaders in today’s meeting with Governor Patrick,” the statement said. “We look forward to continuing these conversations.”

A Murray spokeswoman could not be reached last night.

“We’re delighted the governor wants to repeal it. This is where we want to be,” said Andrew Bagley, director of research at the Massachusetts Taxpayers Foundation, a business group that is organizing the ballot initiative.

The tech tax was but one financing mechanism in Patrick’s transportation bill. The governor went so far as to veto the original bill passed by lawmakers because it did not include large enough increases in other taxes he is counting on to pay for improvements. Lawmakers subsequently overrode his veto, putting the measure into place.

So removing that tax leaves a major hole in Patrick’s transportation plan, which is among the priorities of his second term.

“The question is, what do we replace it with?” Patrick repeated. “The solution is not just to repeal, but to repeal and replace, and that’s the part we’re all working on together.”

The tax had become so unpopular so quickly that Patrick is abandoning it before the state Revenue Department had settled on final rules for its collection.

The governor also appeared to try to distance himself from ownership of the tax. When asked at the Worcester event to clarify his position Tuesday, Patrick said, “Do I still support? I’ve vetoed this, remember. So, no.”

Material from State House News Service was used in this report.

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