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Massachusetts Business Leaders Initiate Repeal of Sales Tax on Computer and Software Services



Repeal of Sales Tax on Computer and Software Services Blog PostJust weeks after passing the Commonwealth’s Transportation Finance Bill (“H.B. 3535”) through a legislative override, twenty top business leaders in Massachusetts filed an initiative petition to the state’s attorney general to repeal the law that made various computer services subject to sales and use tax. H.B. 3535 was passed into law on July 24, 2013 and took effect a week later on July 31, 2013. If the Attorney General deems the petition constitutional, the petitioners must collect 68,911 certified voter signatures by December 4, 2013. The Legislature will then view the petition and determine whether to repeal, modify, or take no action. If the Legislature takes no action, the petitioners will need to collect an additional 11,485 signatures. At that point, Massachusetts voters would decide whether to repeal the tax when they head to the polls in November of 2014. Besides business leaders moving to repeal the bill, Massachusetts State Senator Karen Spilka (D-Ashland) filed petition, S.D. 1872, to repeal the new sales tax. Senator Spilka previously voted in favor of H.B. 3535.

H.B. 3535 has created quite a buzz around Massachusetts, as businesses scramble to understand and properly apply sales and use tax to computer system design services and the modification, integration, enhancement, installation, or configuration of standardized software. As of August 9, 2013, the Massachusetts Department of Revenue publication Frequently Asked Questions: The New Computer and Software Services Tax Effective 7/31/13 had ballooned to fifty five questions, as the department continues to add new questions submitted by taxpayers. The Massachusetts Department of Revenue released on July 25, 2013, a Technical Information Release (TIR) 13-10, Sales and Use Tax on Computer and Software Services Law Changes Effective July 31, 2013. Then, on August 20, 2013, a working draft of a Technical Information Release was distributed asking for practitioner commentary through September 6, 2013. The new TIR will supplement TIR 13-10 and the previously released FAQ’s.

On the same day sales and use tax on these various computer services became effective, the Massachusetts Legislature passed Senate Bill 175 that authorized a sales tax holiday for August 10 and 11, 2013 for non-business sales costing $2,500 or less (with some exclusions). The sales tax holiday did not apply to computer system design services and the modification, integration, enhancement, installation, or configuration of standardized software. Senate Bill 175 was signed into law August 2, 2013.

TECHNICAL INFORMATION CONTACT:

Jeremiah T. Lynch, Principal – Ryan

In accordance with Circular 230 Disclosure

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Mr. Lynch is a frequent speaker on tax topics. He has spoken for the following organizations: American Electronics Association, Association of American Publishers, Council On State Taxation, Georgetown State and Local Tax Conference, Institute for Professionals in Taxation, National Institute on State and Local Taxation, New York University, Institute on State and Local Taxation, Tax Executives Institute.