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IT Services Tax Repeal On the Way

Service providers everywhere took notice when the Massachusetts legislature enacted the transportation finance bill that included a provision that imposed a sales tax on “computer system design services,” meaning “the planning, consulting or designing of computer systems that integrate computer hardware, software or communication technologies”.  What immediately drew the ire of many was the inclusion of the tax on “Services” including “the modification, integration, enhancement, installation or configuration of standardized software”.

I had the opportunity to speak to Middlesex County 21stDistrict Representative Ken Gordon at a summer bbq right after the July 31 effective date.  At the time, he said that the severity of the backlash surprised his colleagues and that many other states had some version of this tax.  Subsequent news stories have stated that legislators were incorrectly told that 35 other states imposed a similar tax.  And a Massachusetts Taxpayers Foundation study advised that the 6.25% tax to be imposed by Massachusetts would be the highest in the country.

The business community mobilized quickly with several websites calling for the repeal of the tax organized, and e-mail blasts being sent advising everyone to telephone their representatives and oppose a new tax many feared would hurt small businesses and make the profitable IT services sector less competitive against neighboring states with no such tax.

And on September 12, the state house news service issued a release reporting that Speaker Robert DeLeo and Senate President Therese Murray announced that they would pursue repeal of the tax which could be taken up by the House during its next formal session with the Senate following quickly thereafter.  There will be a collective sigh of relief when this difficult to understand and unclear how-to-collect tax is in the rear view mirror.