Currently sitting on Governor Patrick’s desk is a state transportation financing bill that raises an average of $600 million in revenue over the next five years. Some of the money would come from hiking the cigarette tax, changing some business tax rules, and adding 3 cents to the gas tax. Yet the bill also includes an ill-conceived new sales tax on computer systems design services. Patrick has said he will send the bill back to legislators with amendments. He should, and one of his changes should be to scrap the computer services tax.
The state forecasts the 6.25 percent tech tax would raise $160 million in revenues. That estimate, however, appears to assume that only services provided by in-state vendors would incur the tax. As currently written, though, the increase would likely apply to any purchases of customized software or Web services. Companies big and small, across virtually every major industry in the state, make such purchases — and would end up paying the new tax. According to the Massachusetts Taxpayers Foundation, corporate technology users could face up to $500 million annually in additional taxes. That’s a major bite to take out of businesses.
Lawmakers could tailor the bill to tax only Massachusetts-based providers. But that would surely disadvantage local firms competing in this sector. Just three other states tax computer and software services in this manner, and none at more than 4 percent. Indeed, many states offer tax incentives precisely to lure in technology companies.
The tech tax should go. Its revenues could be replaced by hiking the gas tax by an extra nickel. That’s a more obvious source of money for transportation anyway.