NewburyportNews.com, Newburyport, MA

September 14, 2013

Lawmakers poised to repeal tech tax

O'Connor Ives: New taxes not needed to replace anticipated revenue

Staff Reports
Newburyport Daily News

---- — BOSTON — It doesn’t happen very often, but Massachusetts is about to repeal a tax.

Just implemented on Sept. 1, the new 6.25 percent sales tax on computer and software services is on its deathbed, doomed after an uproar from the business community.

Democratic legislative leaders from both the House and Senate announced at a news conference on Thursday that they were moving to rescind the unpopular new technology tax, part of the $500-million transportation financing package approved in July. Only a matter of a few weeks old, momentum toward repeal snowballed this week when several top Democratic officials abandoned support for the tax, which business leaders worried would have a negative impact on the state economy.

‘‘It is now evident that the impact of the tax is broader than any of us ever anticipated or intended,’’ Senate President Therese Murray, D-Plymouth, said at the press event.

Republicans, including state Reps. Bruce Tarr, R-Gloucester and James Lyons, R-Andover, filed a bill repealing the tax earlier this week.

Gov. Deval Patrick, who originally proposed the tax in January as part of his $1.9 billion transportation and education plan, announced his support for repeal on Tuesday. Thursday, Murray and House Speaker Robert DeLeo, D-Winthrop, announced their they’d soon schedule votes in their chambers to bring about the termination of the tech tax.

But Patrick has said he wants an alternative source of revenue to replace the $161 million the tech tax was estimated to have generated.

DeLeo made clear at Thursday’s press conference, however, that would not be the case.

‘‘I want to emphatically say: There is going to be no proposal of any new taxes to make up for this revenue,’’ DeLeo said, adding that he anticipated no state budget cuts as a result of the repeal.

State Sen. Kathleen O’Connor Ives, D-Newburyport, said she’s of the same mind.

No new taxes are needed to replace anticipated tech tax revenues, O’Connor Ives said yesterday. Any budget gaps can be filled with with surplus revenues from FY2013, which ended on June 30, or excess revenues from the current, 2014 fiscal year, which began in July 1, she said.

“Before raising taxes, first we need to explore tax reform,” O’Connor Ives said.

Tarr agreed, neither a new tax nor the existing tech tax is necessary at all given last year’s surplus revenue and the fact that tax revenue so far this year is $139 million over projections.

“The main point is we have the funds to readily close the gap created by repealing the tax,” Tarr said. “We need to cease the discussion of a need to replace this ill-conceived tax with another ill-conceived tax.”

O’Connor Ives added that she disliked the technology tax from the start and believed it would be a hindrance to the state’s lucrative and successful technology industry.

“It was part of the transportation financing bill, and I voted against the transportation bill because I didn’t like the technology tax or the gasoline tax increase, which was also a part of the bill,” she said.

State Rep. Diana DiZoglio, D-Methuen, also opposed the tax before the package was passed and is glad to see it go.

“It’s not good for business, especially along our border with New Hampshire,” she said. “We’re moving into an innovation economy and we need to be promoting job development and economic growth in the area, not squashing it.”

Even those who supported it originally cited concerns about its potential impact on Massachusetts’ thriving technology sector, and fears that the tax is overly broad and would hit businesses that not only produce certain software, but those that purchase and use it as well.

“Business groups that supported this early on said they took another look at it and felt it could be damaging to the commonwealth’s reputation as an innovation center,” Haverhill state Rep. Brian Dempsey said. “They had underestimated this. Those groups said they were okay with it, and when they had discussions with their IT departments, that’s when new information and concerns were raised. We’re responding to that.”

It was only after the state budget had been finalized that business leaders began to speak out strongly against the tax, lawmakers said.

‘‘We in the business community underestimated the negative impacts of this tax,’’ Dan O’Connell, president of the Massachusetts Competitive Partnership, acknowledged at Thursday’s news conference.

The strongest opposition emerged from smaller software firms that said the tax was vague and confusing and could prompt them to shed jobs or send business to other states. Florida Gov. Rick Scott even used the tax in a pitch to woo Massachusetts businesses to relocate to his state.

Patrick and legislative leaders expressed concern that the controversy surrounding the new tax was creating a perception that Massachusetts had become a less friendly environment for innovative technology firms that had long been viewed as a pillar of strength for the state’s economy.

The Associated Press and State House News Service contributed to this report.