Paying sales tax on IT services angers US channel

Chris Gonsalves notes industry displeasure at the news that many IT services previously exempt will now have sales tax applied in one US state.

UK channel players may be intrigued to learn that technology leaders across the US State of Massachusetts are in an uproar this week over a new sales tax on computer services.

The new tax targets "the planning, consulting or designing of computer systems that integrate computer hardware, software or communication technologies and are provided by a vendor or a third party".

In Massachusetts, such services had previously been exempt -- and this broad definition snares just about everyone in the technology services industry.

It has the leaders of some of the state's biggest technology purveyors - like Staples, BJ's Wholesale Club, Analog Devices and Boston Scientific - scrambling to craft a ballot initiative to repeal the new sales tax, according to newspaper the Boston Globe.

Twenty corporate executives, along with business groups like the Massachusetts Taxpayers Foundation and the Massachusetts High Technology Council, hope to get a referendum question in front of voters on the the November 2014 ballot asking them to repeal the computer service tax.

The new tax caught many in the industry off-guard, ensconced as it was in a larger $800m transportation finance bill that raised taxes on gas and cigarettes, the kinds of hikes to which Massachusetts residents are long accustomed and rarely notice any longer.

But this bill, the product of months of wrangling between state legislators and Governor Deval Patrick, also applies the state's 6.25 per cent sales tax to an array of computer services which had previous been exempt.

"It's a frightening tax because of the precedent to single out technology-related companies for a source of revenue," Pete Nicholas, chairman of Boston Scientific, told the Globe. "It really acts against the impulses of people who want to grow and flourish in the state."

Lawmakers and the governor contend the new computer services tax will be used to repair roads and transportation systems, investments that benefit all businesses.

"The governor supported this plan to invest in the future of the Commonwealth (Editor's note: the official name of this US state is the 'Commonwealth of Massachusetts') -- and this particular avenue for raising revenue -- because the people and the businesses of the Commonwealth want and deserve a reliable, modern transportation system," Patrick administration representatives said in a statement.

The government claims the new tax should generate about $150m (£96m) annually for transportation initiatives, but critics maintain the broad wording of the bill is likely to create more than $500m in new taxes per year.

Never let it be said that Massachusetts, also known as the Bay State, doesn't jealously guard its alternate nickname: Taxachusetts.

Chris Gonsalves is vice president of editorial at Channelnomics

As part of our special editorial partnership, CRN is republishing this article from Channelnomics