The Massachusetts “Tech-Tax” Fiasco – Good Policy, Bad Policy or No Policy Connection?

In a few months, I’ll be presenting at a Cloud Services and Digital Goods Symposium – Avalara’s Sales Tax Horizons 2014. I’ll be a part of three member Policy Panel speaking on “Where We Are Today with Technology Tax Legislation.” 

Of course I’m thrilled to have been invited to participate in this upcoming “First of its Kind” Tax Forum. One reason is that state tax policy is an area I follow very closely! Now I won’t spend a lot of time talking about state tax policy in this post as I’d love to devote an entire post to that topic in the future. 

But this did get me to thinking about an article I recently authored for the Institute for Professionals in Taxation (IPT) Tax Report. In that article, titled “The Massachusetts ‘Tech-Tax’ Fiasco: It’s History, Impact and Valuable Lessons Learned,” I provided an overview of a controversial tax provision enacted last July (2013) as part of a Transportation Funding Bill, which would have expanded the Massachusetts 6.25% sales tax to computer software design and certain software modification services. Not only was the new tax provision both vague and complex, its enactment took many in the technology and business community by surprise, was seen as targeting a vibrant sector of the Massachusetts economy, and because it was effective only seven days after its enactment, it soon became the subject of widespread criticism. This led to a successful “grass-roots” effort to have the technology tax legislation repealed less than two months after its effective date.

Although the tax provision is no longer in effect, it remains an example of a bad tax policy approach, or should I say, an example of a “no tax policy connection.”  You see, good tax policy often suggests that the object or persons being taxed have some connection to the desired outcome. This is the reason why cigarette taxes are so high (to potentially encourage the cessation of smoking) and why when Colorado legalized the use of recreational marijuana, it also enacted an additional 15% sales tax on the retail sale of marijuana. 

But where Massachusetts’ “technology tax” was concerned, there was no viable policy connection. This was a tax on “technology” intended to fund current and future “transportation” needs – roads, bridges, buses and subway trains.  In the end the policy connection just wasn’t there! 

Sylvia Summation

Ah, the Massachusetts “Tech-Tax” fiasco!  An example of a bad or “no connection” policy. With States continuing to search for new revenue sources, it’s likely – though unfortunate – that we’ll see similar legislative “fiascos” occur in other states. Here in Massachusetts, our legislators learned valuable lessons – but will other state legislatures take notice?

By the way, you can read and/or download the entire article from my firm’s website, by clicking on the article title in the post above or here:  

“The Massachusetts ‘Tech-Tax’ Fiasco: It’s History, Impact and Valuable Lessons Learned“

You can also read more about the Massachusetts “technology tax” (now repealed) at my prior “Buzz” post:

“Sales Tax on Computer Design, Software Modification Services: Massachusetts Issues Initial Guidance, Yet Questions and Challenges Remain“