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It's a great way to drive that particular business out of the state. If they apply this tax towards STEM education, then the benefit might be worth it.
You understand that if it drives the business out of state, there is no benefit, no upside. There is no money to go towards STEM, and if the states general economy goes down over it -- it is a net-negative on STEM.
I don't understand how they singled out software developers. Why not lawyers or landscapers or pool service. Why not tax something that no one likes that can't move out of state - TV and radio ads?
Unfortunately Mass. has unfunded pension liabilities exceeding $20 billion (not including municipalities), and unfunded health care liabilities exceeding $45 billion (including municipalities. At the same time, states will have to deal with the new normal, which is lower economic growth indefinitely and lower returns on invested assets. As a result, states will ratchet up taxes to cover their increasingly untenable b…
See section Data Processing Services here: http://www.window.state.tx.us/taxinfo/taxpubs/tx96_259.pdf
Examples of data processing include ... web hosting, web site creation and maintenance; data storage, including offsite backup of electronic files; conversion of data from one type of medium to another... . Data processing services providers include sellers of software as a service and application service providers.
That would, for example, mean that a service like Tarsnap or Heroku would be subject to Texas sales tax, if they had a Texas nexus for sales-tax purposes, which isn't the case in Massachusetts even under the new law.
What a mess. At this point I'm not inclined to sell to anyone in the state.
It only applies to you, the seller, if you are located or have an office in Massachusetts.
So no, it applies if your client is located in the state.
This minefield of regulations about what's taxable and what isn't will just make it much more expensive to sell things, as people pay for lawyers/accountants to figure out what "tax" to add to every outgoing invoice. Since this will decrease consumption, it will reduce other tax revenues, as well as making this pot smaller.
Mad. Stark Raving.
When we started we were compatriots with many such contractors in the city. They said, confirmed by our accountant, that our services were not PST eligible so we collected and submitted only the federal GST. This we did for 5 years without any incident; like an audit from the province.
In 2004 our business failed and we were in the process of closing up shop when the feds audited our GST history and found that in 2001-2004 our GST submissions were off and we owed about 30k incl interest and files. We made arrangements to pay the bill. Painful but under control.
But, the federal audit triggered a provincial audit and that's when we discovered that the rules for PST regarding software/it services had changed during our run, making the work we did subject to the 8% PST. The rules for that are eerily similar to those described in the OP.
The provincial government determined that the changes to The Act were retroactive and covered all the business we ever did and that with interest and penalties we owed over 700k payable by the end of that week or they would take action. The company was broke so he action we were threatened with was that, as officers of the company, we were personally liable for the amount and that if not paid by the end of the week, our personal bank accounts would be frozen. This was not good.
Further we found out that at that time, these rules were only enforced when a PST audit occurred. So, when we told the many contractor pals in town that this could be a problem for them. a) they didn't believe it, and b) AFIK none of them changed their practice of collecting only the GST.
Anyways, there was a loophole where a customer could assume the liability for the PST by giving us a waiver form. Luckily the majority of our work was with one customer, a huge corp, who agreed to do this and we were off the hook.
It was a very stressful week.
PS. I have not done any consulting since 2004 so I am not aware of any subsequent changes to The Act. AFIK, none of the contractors I know were dinged the way we were. I figure that harmonization of the taxes means they are collecting tax for both govt entities now.
It's a great way to drive that particular business out of the state. If they apply this tax towards STEM education, then the benefit might be worth it.
You understand that if it drives the business out of state, there is no benefit, no upside. There is no money to go towards STEM, and if the states general economy goes down over it -- it is a net-negative on STEM.
I ran a consulting business in Ontario Canada from 1999-2004 Today the provincial sales tax is included (harmonized) with the federal sales tax as the HST (8% + 5% = 13%) but back then they were charge separately as PST and GST. Each tax act treated software and software services differently. When we started we were compatriots with many such contractors in the city. They said, confirmed by our accountant, that our s…