[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.

[Zakharov]

Governments usually try to work around that, including the staple food exception you mentioned, but that makes the whole system a mess of exceptions and exceptions-to-exceptions.