Momentum for Tech Tax Repeal Builds to a Climax

I started posting about the Massachusetts #techtax back on July 13. Seasoned observers noted that the only way that the tech industry in Massachusetts could be targeted by such a bad policy was if they were completely lacking in political activity and clout. A LOT has changed since that day, and now a repeal is “trending”.

I found myself working with both the establishment lobbyists, and the grassroots mob with pitchforks. I supported the Mass High Technology Council, a group representing bigger businesses that sponsored an expensive ballot repeal initiative. They helped me get interviews with newspaper, radio, and TV reporters. We educated the press on the damage this hasty law was causing. The press started following the issue, and they came out 100% against the tax in editorials. There was also a true grassroots effort of small IT service shops, Web and mobile developers, and entrepreneurs. Many of them are represented by Spark — https://twitter.com/SPARKcoalition .

The establishment guys — Mass Taxpayers Foundation and MTLC — got me invited to a “summit” meeting that Governor Deval Patrick pulled together last Wednesday — the day after returning from summer break. He was also able to pull in the people who have the true power over this legislation — House Speaker DeLeo, and Senate President Murray.

I got a chance to describe the logical problems with this tax. The most striking moment came when I described “contamination.” A system becomes contaminated with complicated sales tax obligations if it is built on commercial software, and it is sold in Massachusetts. Open source and custom software is tax free, as is software that is officially purchased across the border. However, if I buy a $150 content management system, and then proceed to spend three years building a Web site around it to, for instance, collect campaign contributions, that system is contaminated and I have to pay sales tax on everything I do to it, forever. Patrick asked “is contaminate a legal word?” The representative of the state Department of Revenue asked “What do you mean by forever?” Apparently they thought when a system was delivered, the tax payments on modifications were finished. They had never considered the idea of continuous improvement and continuous delivery. So, understanding continuous delivery was an important part of the argument.

I also pointed out that it is easy for Assembla to avoid this tax. I just sell software outside of Massachusetts. The small shops with local clients are the ones that get hit.

On Friday, Governor Patrick called me to say that he had decided to support repeal of the Tech Tax — the Massachusetts sales tax targeting software modifications and IT services. Today the legislative leaders held a press conference at the statehouse to say that they would support the repeal and bring it to a vote in September.

The challenge that Patrick threw down was “repeal and replace” — finding a way to replace the $160M that they wanted to raise from the new tax. Fortunately, tax revenue for 2013 is higher than expected, and it can cover the cost of the repeal.