Massachusetts introduced a new ‘tech tax’ or a new sales tax known as software services. The larger transportation bill that was passed and made effective by the state legislature also included this new tech tax. According to this tax, tech firms active in Massachusetts are required to collect sales tax of 6.25% from ‘software design services’, as it is being termed. The sole intention of introducing the new tech tax was to raise and build an annual fund of $160 million.
The definition that the Department of Revenue gives to these services is that they are integration, modification, installation of standardized, installation of configuration, enhancement or prewritten software. Some of the inclusive items are standardized, like the modification of the off-the-shelf program configuration, software, and also website design and development. Professionals and individuals active in the IT industry in the state of Massachusetts were not well informed about this part of the bill and the fact that it even existed was not known to them. Many of these people started to wake up or get to know about the entire fiasco, once the time of tax collection arrived. As a result, tech companies have to include the tax and send the invoice to their clients, charging them with the extra amount.
It is a known fact that Massachusetts has a strong tech industry and it is the origin of top technology companies today. Though the US economy is experiencing a bad situation, it is slowly recovering too. However, the major burden or aftermath of economic chaos is being put on these firms. There is no way to unburden because they have to work hard to succeed in their ventures and also survive in the market. With the introduction of the new tax, the process has slowed down further to a great extent.
Tech firms now are looking for ways to pay or compensate for the 6.25% income drop, which has caused major revenue issue. Already these firms are fighting the tough competition and they now have to increase their service or product rates to 6.25%, which their customers have to pay in order to reduce their corporate expenses. In both ways, the companies have to face the music. Cutting down on expenses and resources will lead to staff elimination, decreases in benefits and wages, creation of a negative impact in the market and more. Companies will have to spend hours and hours to let their clients know about the increase in their fees, leaving many customers baffled too. This will cause only hours wasted and nothing else.
With these reasons and more, tech companies in Massachusetts are expressing their grievances against the tax to their legislators and efforts are being taken to repeal the tech tax.