Recently the Massachusetts legislature enacted a sales tax on the sale of technology services, effective on July 31, 2013. More specifically, the act provides a 6.25% sales tax to “certain services relating to computer system design and to modification, integration, enhancement, installation, or configuration of standardized or prewritten software.”
This tax was enacted to support the override by the legislature to pump $800 million dollars into the transportation system. The rationale behind the override was that the aging and ailing transportation system (i.e. transit service, roads and bridges) was adversely impacting economic growth within the Commonwealth. Apart from the wisdom of enacting such a tax, there are a number of issues surrounding its implementation. The act is vague and ambiguous as to what services are within its scope; therefore its implementation will be a challenge for the Massachusetts Department of Revenue. The flip side of this is that the targeted technology businesses might not completely understand if their particular service is covered, or how to allocate the tax should their service and product offering be sold as an integrated package.
No one should have to guess at something this critical to the pricing structure of their company. The impact is unclear (as the Commonwealth is just one of four other states which have enacted such a tax, with Massachusetts’ act being the highest of the five), but what is clear is that it will certainly be a factor for the affected companies to consider in determining plans for new or expanded locations. It’s almost a mathematical algorithm that where the businesses are, or go, as the case may be, so goes the pool of employees necessary to service those businesses. With that being said, the real question is whether the tax will yield its projected revenues if the businesses that are the subject of the tax, and their employees, are conducting business elsewhere?