[tomheon]

According to a friend of mine who is relatively knowledgeable about this law, it was originally intended to target enterprise companies that were essentially selling software for next to nothing and then charging like mad for the "installation and configuration" to avoid sales tax.

The wisdom of even that approach is debatable, but the actual language of the law is far from conveying that intent and is a total, indecipherable mess. No one has the remotest clue what is actually covered under the language of the law.

I'm part of a small software consultancy in MA, and we've now got 30 days to decide which of our customers this crazy language applies to, and which it doesn't. Is Django "pre-written" software? Does spinning up and customizing an instance count?

It's crazy town.

[SilasX]

>intended to target enterprise companies that were essentially selling software for next to nothing and then charging like mad for the "installation and configuration" to avoid sales tax.

Such is what happens you impose high tax rates: people relabel transactions so they fall outside the tax. The. You have to issue new rules that try to make the relabeling not work. Then, the regulation books start to explode in length to cover the all the blooming techniques, and with it, he regulatory agencies...

And then the process starts over.

[mindrag]

This is America, where even people who pay a next-to-nothing tax rate on high incomes complain about supposedly high tax rates.

[claudius]

Or you could just implement sensible taxes in the first place, e.g. by not exempting ‘services’ from a (then-renamed) ‘sales tax’. It is rather easy to have a loophole-free tax on sales and services, unless you have specific requirements not to charge X, Y and Z because A, B and C – then it quickly can get complicated if people try to squeeze W and V into X and you have to build up regulation books :)

[xav0989]

A simpler approach would be to set up a lower tax rate on both sales and services.

[esw]

I bought a new kitchen countertop through Lowes a few months ago, and this is exactly what they did. The countertop is priced by the square foot, but they write up the total cost as labor so that they don't have to charge sales tax.

[Oculus]

I think the idea is a fairly reasonable one, taxing large enterprises for charging insane support/servicing fees. Their implementation of it sounds really crappy though.

[cpher]

What on earth about this is "reasonable?" How is this any different from other professional services? We're supposed to live in a free market society where customers have the choice to pay those "insane" fees if they want to. You're advocating that the government stick their noses into the business decisions of the private sector.

It's funny that this takes place at the site of the first tax rebellion.

[nknighthb]

Professional services taxes similar to sales taxes are not unheard of, nor are gross receipts taxes that vary based on what kind of business you're in. There are as many tax systems as there are tax jurisdictions.

The problem here is somebody wrote a "services tax" without the first clue what they were actually doing. It's like intending to impose a new cigarette tax, but writing it such that anything which burns might fall under the definition of cigarette.

Also, the main point is that they're not following the spirit of the law. The primary value is the software, but they're under-charging for it and over-charging for related services in order to avoid taxation on the true value of the software. That's what someone was ham-fistedly trying to fix.

[cpher]

There are as many tax systems as there are tax jurisdictions.

And this is one of the main problems. Not only are governments (local, state, federal) trying to find creative ways to siphon money from the private sector, but the inherent nature of software services make this impossible to manage or track.

What's wrong with allowing a company to charge $1 for their software, then $100k for customization? Yes, it's a sales tax loophole, but how would this be different from a custom electronics or plumbing supply company from charging $1 for the parts and $100k for labor?

I don't know that a gross receipts tax is the answer, or what is. MA is free to do what they want, I'm just worried that this will spill over to IL, who is much more in debt.

[nknighthb]

It's not different, and if that's happening in those industries, it should be halted there, as well. Either that isn't happening (or happening to the same extent) in those industries, it hasn't been brought to the legislature's attention, or, as someone brought up elsewhere, other industries have better lobbyists.

Don't look for me to defend sales taxes in general, they're regressive evils and should be ripped out and replaced with progressive income taxes. But so long as they exist, I'm happy to see loopholes like this closed. Just not closed stupidly.

[cpher]

@nknighthb, I can't seem to reply to your last comment, but I'm curious... why are sales taxes "regressive evils?" The more you consume, the more you pay (at least for physical products). This makes sure everyone has skin in the game.

I would argue that an income tax is a moral "evil", but realize we're way past ever abolishing it. There's no inherent reason a governing power should ever know how much income you produce, even though it may be convenient (and popular) to impose. I suppose that's where our worldviews differ.

[nknighthb]

HN delays reply links based on how deeply nested replies are. Though you can find your way around that...

A regressive tax has a specific definition. It's a tax whose effect is to take a greater percentage of income the poorer you are. Sales taxes, like all flat taxes, are inherently regressive. If I make $10,000/year, all of it is getting spent, which means that less any exemptions (which vary by state, but may include things like staple foods), an 8% sales tax eats 8% of my income.

If I make $100,000 year, I may well only spend half of that, which means only 4% of my income is taken.

This is evil in general because I believe, as you clearly do not, that "governing bodies" are simply instruments of civilized society, and those making the most money are reaping the greatest rewards from that society, and should be required to contribute back a correspondingly greater amount.

But it is especially evil because if I'm making $10,000, I'm just trying to survive, and the sales tax makes that harder, while if I'm making $100,000, I'm way past survival, and well into luxury territory.