New State “Technology Tax” Is Really a Tax on Innovation
Over the course of its history, Massachusetts has been regarded as a hub of innovation and a leader in developing new technologies that improve the quality of life for people around the globe. Alexander Graham Bell, Guglielmo Marconi, and Amar Bose are three giants of innovation with Massachusetts roots whose brilliance and technological advancements shaped the world we live in today. These innovators helped to create a legacy of discovery and progress that is carried on by the brilliant men and women who make up our state’s diverse technology ecosystem.
But a recent development threatens that legacy of innovation and achievement. The threat does not come from outside factors such as federal regulations or global competition but, inexplicably, from within Massachusetts. Under a new law approved by Beacon Hill lawmakers, providers of custom software and network design services—those at the very heart of our innovation economy—must now collect and pay a 6.25 percent sales tax on the services they provide. Effective July 31, the law has resulted in widespread confusion and has put Massachusetts innovators at a significant disadvantage relative to their peers in other states.
A study undertaken by the Massachusetts High Technology Council confirms the Bay State’s status as a leader in technology. We have the highest percentage of tech workers of any state, the largest number of tech clusters, and a highly educated workforce that is second to none. However, by a number of impartial measures we have a long way to go in making Massachusetts more cost competitive relative to our peer states. Adding a tax this broad that no other state has makes us even more uncompetitive at a critical time when tech firms are increasingly expected to lead economic growth and hiring.
Why Beacon Hill is taxing innovation is a fair question without a clear answer. The Massachusetts High Tech Council began to speak out against this tax after it was proposed by the governor in January. In the intervening months, we repeatedly made our case with legislative leadership and with rank and file legislators. The Legislature did scale the tax back, but despite our call to eliminate it altogether and avoid damage to a critical sector of our economy they chose to keep it, citing the need for more tax revenue.
After receiving strong backing from our board of directors, the Massachusetts High Technology Council has joined with the Mass. Taxpayers Foundation to lead an effort to repeal the new law that applies the state’s 6.25 percent sales tax on custom software and network design services. Twenty Massachusetts business leaders representing a range of small and large companies from across the Commonwealth signed an initiative petition to place the question on the 2014 statewide ballot. If the Legislature were to repeal the tax, we would cease the campaign. However, at this point legislative action seems unlikely.
Those who drive the Massachusetts innovation economy forward run the gamut from large multinational companies to sole proprietor code developers. Whether large or small, they combine to create one of the most vibrant and diverse technology economies anywhere, employing thousands of people in the process. When these businesses grow, they hire more people and generate more tax revenue the state can use to fund the programs we all care about.
This new “technology tax” will do nothing to promote growth among technology firms. In fact, it will seriously impair their ability to win business and deliver the kinds of innovations we have come to expect from Massachusetts companies. To preserve and continue our state’s legacy of innovation we must repeal this damaging tax on innovation.