Crazy New Massachusetts Computer Software and Services Taxes

Mass leads the nation again.  It’s trying to impose new taxes on the computer industry, and is doing it in such a confusing way that no one is sure what these now-in-effect-taxes really require.  Sheesh.

Here’s a summary.  You can read a full article here.

Any company that has software “used” in Massachusetts (internal software or external software presumably) and who doesn’t do ALL of their own IT work.

…This law went into effect a couple of weeks ago, and so starting July 31st, 2013, any contractors, freelancers or IT shops need to start charging their clients tax if their software is “used” in Massachusetts.

…I explained that there is no way for our techs to separate out one from the other in our current ticketing system and even if there was, I couldn’t even train them how to do it fast enough.” –Delcie Bean CEO Paragus Strategic IT

This affects a lot of software vendors whose customers use Google Apps; if they have a customer rolling out Google Apps across an industry, and they need help “customizing” or “updating” anything, the freelancers and web design shops that get this cottage industry business will now be taxed.

…I’m sure the HPs of the world will be fine; big cap companies may have to invest quite a bit in training and accounting because of this, but they also have high-priced lawyers at their disposal who can work out the loopholes. It’s the freelancers and smaller shops who are already paying income tax on their work that will have the biggest increase in their administrative burdens, accounting costs, and liability as a percent of revenue.

…“… computer software, including prewritten upgrades, which is not designed and developed by the author or other creator to the specifications of a specific purchaser. … Prewritten computer software includes software designed and developed by the author or other creator to the specifications of a specific purchaser when it is sold to a person other than the specific purchaser.

…We’ve created a flow chart for our clients to help them understand how this law will affect them, and we’ll keep it as up to date as we can.

…Once they have that, you don’t have to charge them sales tax–instead, they are responsible for their own “Massachusetts portion of the use” and for filing a Massachusetts tax return.

…If you’re based in Massachusetts and you’re working with out-of-state clients they’re exempt UNLESS they come to your office for services in which case some (all?)

…If you offer a combined (taxable and non-taxable) set of services to a client, and 10% or less of the work is taxable, you are not required to collect sales tax for that total amount of work.