Opinion

The Tech Tax, from a Tech Firm’s Angle

By DELCIE BEAN

In July, Massachusetts imposed a 6.25% sales tax on ‘computer system design services,’ which means this state now has the highest tax on computer and software services in the country.
Large and small tech firms across the state are dismayed at the new tax’s potential effect on our businesses. We are confused by the vagueness of the tax — it’s unclear in many cases what services are to be taxed and what aren’t. The state Department of Revenue originally promised a clearer definition of what was and wasn’t taxable by October; however, it now appears to be backing off even that date.
Meanwhile, the tax still must be collected, all the way back to July 31, one day after the DOR first offered a definition of the tax. We feel ambushed by the 11th-hour manner in which it was pushed through, just before legislators’ summer break, with no allowance for consumer or business input.
One of the particular challenges of this law is that the staff of my company, Paragus Strategic IT, collectively records approximately 500 unique billable events each day and would therefore need to train its entire staff on how to make very complex assessments of whether each of the individual tasks they performed was taxable or not — using a definition so complex that the state can’t even define it.
Couple this with the fact that Paragus, like most IT companies, uses a ticketing system to keep track of the billable work it does for its clients, and that these systems were not designed to allow technicians to mark work as taxable or non-taxable. In order to properly manage these changes without compromising profitability and efficiency, six to 12 months would have been required. Instead, Paragus is faced with having an administrator spend 20 to 30 hours a month going through the billable work of all technical employees and identifying which work is taxable or not.
We are not alone. As reported in the Boston Globe, Springfield attorney Scott Foster, a partner with the law firm Bulkley, Richardson and Gelinas, LLP, has announced plans to challenge the tax in court, declaring it unconstitutional. This announcement resulted in Gov. Deval Patrick officially going on the record as saying he was concerned about the impact on the state’s efforts to expand its technology industry.
I started the company that became Paragus Strategic IT when I was 13 years old. What was once a one-man operation has turned into a company with 31 full-time employees and clients all over New England. For the past two years, we were named in the top third of Inc. magazine’s annual ranking of the 5,000 fastest-growing businesses. In 2012 we were named the second-fastest-growing outsourced IT firm in all of New England. Our growth has allowed us to add a staff member approximately every six weeks.
Like other local tech companies, we are doing what we can to bring jobs and economic vitality to the Pioneer Valley. This new tax isn’t making our job any easier.
In the near term, I am worried about how our clients will react to the new charges and how we will possibly become compliant in the very short period of time allotted. In the long term, I am concerned about the tax’s effect on one of the state’s major growth industries. This new tax is one more sign that Massachusetts might not truly be vested in the long-term best interests of the technology sector, making it harder to attract the biggest employers.
A 2014 ballot initiative is being filed to repeal the tax. Until then, we are doing what we can to operate under this new tax, to the best of our understanding, with as minimal impact to our clients as possible. We do encourage people to take a look at the tax and to think about the role of the tech industry in the Pioneer Valley, both now and in the years to come — and to think about whether there might be a smarter way to raise the extra revenue.

Delcie Bean is founder and president of Paragus Strategic IT.