Business Leaders Seek To Put Repeal Of Computer Services Tax On Ballot

Citing a threat to one of the state’s key economic sectors, Massachusetts business leaders announced a campaign Wednesday aimed at enabling voters in 2014 to decide whether to repeal the state’s new tax on computer and software services.

The push to repeal the new technology sales tax marks the second initiative petition in as many days to be unveiled by opponents of the new taxes that serve as underpinnings of the state’s new $500-million law financing investments in the transportation system.

On Tuesday, Republican lawmakers and activists announced a proposed ballot question to repeal the law that triggers automatic increases in the gas tax to keep pace with inflation, a measure lawmakers are counting on to bring in about $7.7 million in fiscal 2015.

The proposals underscore the peril of passing a major tax package without consensus. Democratic legislative leaders rammed the tax law through over the objections of Republican lawmakers, Gov. Deval Patrick and many in the business community. While Republicans and business leaders derided the computer services tax as a job killer, Patrick had hoped for a larger revenue package, saying the tax bill lawmakers sent him was inadequate to meet the transportation system’s many spending demands. Patrick is still mulling over transportation spending options.

Michael Widmer, president of the Massachusetts Taxpayers Foundation, called the software and computer design services sales tax “the most anti-competitive piece of legislation in my 21 years as head of the foundation” and predicted it “will cause incalculable damage to job creation and the Massachusetts economy.”

Though legislative leaders estimated application of the 6.25 percent sales tax to this new category of services will generate $161 million in additional revenue, the MTF and others fear it could climb as high as $500 million a year in new taxes on established businesses and start-ups. New tobacco taxes, worth an estimated $165 million in fiscal 2015, are the only other piece of the tax package with a larger revenue impact, according to estimates.

A House amendment to strip the computer services tax out of the transportation financing bill failed in April on a vote of 54-97. Rep. Ryan Fattman, R-Sutton, who voted for the amendment, tweeted Wednesday morning about the initiative petition, writing that it was “nice 2 have allies.”

In a statement Wednesday, House Speaker Robert DeLeo said the tax was part of a “carefully measured plan,” said no complaints were raised about the tax until proposals had passed the House and Senate, and made note of House support for measures to promote economic development over the past five years.

In a statement, House Republican Minority Leader Brad Jones called the new tax “reckless” and said he supports the repeal effort. “The opposition to this tax transcends party lines, and represents a broad demographic,” Jones said. “Our voices will be heard, and our efforts will be relentless.”

The initial petition to repeal the tax that will be filed with the attorney general’s office has been signed by 20 small and large business owners, including Ron Sargent, the CEO and chairman of Staples, and Laura Sen, president and CEO of BJ’s.

“As an entrepreneur who founded a Massachusetts-based company that develops life-saving technology that today employs more than 25,000 people here and around the world, I have grave concerns about the chilling effect this tax will have on technology innovators seeking to start or grow a business here,” said Pete Nicholas, founder of Boston Scientific Corp., in a statement.

Some of the concern over the new software services sales tax stems from anxiety in the business community over how the tax will be applied and to what products, creating uncertainty and confusion about the full impact of the new tax laws. Others have expressed concern about the possible extension of the sales tax to other services.

“Should this reckless tax on the computer services industry be allowed to stand, it sets a dangerous precedent for future efforts to tax other vital services – thus suppressing future economic growth,” Jones said.

House Ways and Means Chairman Brian Dempsey and Senate Ways and Means Chairman Stephen Brewer have written a letter to the Department of Revenue attempting to clarify the Legislature’s intent, and have said they will tweak the law or instruct DOR to apply the tax more narrowly if it nets more than the estimated $161 million.

Legislative leaders have said business groups were slow to bring their concerns about the tax to their attention.

Patrick said last week that Widmer “was involved from the beginning, he and others, in the tax plan that we put forward and the one the Legislature put forward.”

“If anything he had an unusual amount of influence on the package that the Legislature ultimately enacted. So when the Speaker and the Senate president say, it is kind of odd to hear about this issue with this level of energy at this point, I am sensitive to that,” Patrick said. “But I like said, nothing we have done here is immune from further review as we go along. And you should know his is not the only analysis out there. There are competing views on the other side of this question.” Patrick said his record of supporting the innovation sector was “pretty darn strong.”

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