Massachusetts Squeezes Small Business to Increase Revenues

Date: November 15, 2013

Across the country, states are lifting the couch cushions in search of extra revenue. And lawmakers’ proposed solutions aren’t good for small business.

In Massachusetts, for example, lawmakers passed a new “tech tax” in July, applying the state’s 6.25 percent sales tax to computer consulting and software services. The measure was estimated to bring in about $160 million a year to pay for transportation improvements.

But Massachusetts business and tech leaders widely panned the tax, and it was repealed less than two months after it took effect on July 31, said NFIB/MA State Director Bill Vernon. In September, the Massachusetts House of Representatives voted 156–1 to repeal the controversial tax, and the state Senate followed with a 38–0 vote. Gov. Deval Patrick, who initially supported the tax, signed the repeal on Sept. 27.

“With massive confusion about what services were subject to the tax and the realization that the tax was damaging the state’s reputation in the technology industry, legislative leaders and the governor have acquiesced and repealed the tax,” Vernon said. “NFIB fully supported the repeal of this ill-advised and ill-defined tax.”

The sales tax expansion was so confusing that small business owners spent hours of their time studying the legislation to determine if they would be affected. “I lost a significant amount of billable time due to taking the time to investigate and examine this law and try to figure out what was taxed and not taxed,” said NFIB member David Levenson, owner of Creative Computer Consulting, a tech firm in Framingham, Mass.

At press time, lawmakers were debating the next step. The Massachusetts Legislature may decide to replace the tech tax with a broad-based tax, a move NFIB opposes.

“With state revenues running nearly $140 million above expectations in the first two months of the current fiscal year, NFIB believes a replacement tax is unnecessary,” Vernon said. “We would be particularly opposed to a tax that disproportionately affects our members, such as a further increase in the gas tax.”

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