And it’s not just Massachusetts developers that have to deal with this. It’s anyone who has clients who have “software” that is being “used” in Massachusetts.
Talk to your lawyer if you doubt me on this one, but Quill vs. North Dakota means that it is the well-settled law [+] of the United States that you cannot be liable for sales or use taxes enacted by a state which you don't have a "nexus" in. What exactly constitutes a "nexus" can be hazy, but the punchline for the overwhelming majority of HNers is that if you do not have an employee who performs work for you within Massachusetts you almost certainly do not have a nexus there.
Theoretically HN users who are also Massachusetts residents will have to start remitting use tax to the state to cover purchases of covered which they made from out-of-state merchants. It is an open secret that compliance in the US with use taxes is nearly zero.
+ Well, until they pass that threatened Internet tax legislation.
> the punchline for the overwhelming majority of HNers is that if you do not have an employee who performs work for you within Massachusetts you almost certainly do not have a nexus there
If you're a consultant who does work on-site for an MA client, that may also establish a nexus. In some cases it can do so even if you don't physically travel to MA, since the services can be deemed to have been rendered in the client's location. But others are deemed to have been rendered in the consultant's remote location. It's a little conceptually (and legally) unclear where remote services "happen", and seems to depend on the state and the service and the precise consulting relationship.
Conventions that are work related and you work at a both promoting your work or products counts as well it seems. I had a client that went to Vegas several times a year for a convention and just running a booth made Vegas a nexus for him.
Poorly enforced tax regimes are the worst. You have no idea when the tax man will come by and put you out of business.
Here's an unrelated example in a notoriously insane tax state (New York). When is a pretzel a baked good, and when is it prepared food? The tax people often can't figure it out either.
It is an open secret that compliance in the US with use taxes is nearly zero.
Yes, but at least in MA, they pay when they get audited. Small companies may not be complying without audits, but anyone big enough to use invoice processing software is probably complying -- or at least, is actively ignoring prompts from their software to comply -- which controller/accountants/CPAs don't usually like to do.
Paying a use tax is often overlooked, especially when a significant amount of hardware purchases are made through Amazon which does not charge sales tax in MA (yet). If you are a controller, it is relatively easy to keep track of these purchases throughout the quarter and pay 4 times per year.
You should generally file some amount each quarter (even zero), if only to keep the MA DOR off your back.
I just scanned the FAQs from the MA DOR. Seems one should avoid having any physical presence in the state of MA. Avoiding the Physical presence would require the client to handle the burden of the tax.
Unfortunately Mass. has unfunded pension liabilities exceeding $20 billion (not including municipalities), and unfunded health care liabilities exceeding $45 billion (including municipalities. At the same time, states will have to deal with the new normal, which is lower economic growth indefinitely and lower returns on invested assets.
As a result, states will ratchet up taxes to cover their increasingly untenable budgets, as we've seen in Illinois (which recently almost doubled its state income tax) and Mass.
My guess is that this process will accelerate the internal migratory trends that are already in place. E.g. Nebraska, which banned defined-benefit pensions in the 1960's is sitting pretty with $43 of unfunded liabilities per person. Relevant to tech, the following states have big research universities (and thus a supply of educated workers) and also relatively manageable unfunded liabilities: Pennsylvania, Michigan, Wisconsin, Texas, and North Carolina: http://www.nasra.org/resources/Moodys1101.pdf.
I don't disagree with the macro point, but if you don't like this particular tax, Texas would be a poor choice of alternatives, because it already applies sales tax to an even broader class of software services than MA is now doing. For example, even hosted services like SaaS are covered under the Texas taxable-services definition, in cases where Texas has sales-tax jurisdiction (e.g. your business has an Austin office, and you have clients in Houston).
Examples of data processing include ... web hosting, web site creation and maintenance; data storage, including offsite backup of electronic files; conversion of data from one type of medium to another... . Data processing services providers include sellers of software as a service and application service providers.
That would, for example, mean that a service like Tarsnap or Heroku would be subject to Texas sales tax, if they had a Texas nexus for sales-tax purposes, which isn't the case in Massachusetts even under the new law.
'data processing' is still unclear for many. I'm in Austin and last month I had a graphic designer/front-end programmer add sales tax to an invoice because he thought he had to.
Unfortunately Mass. has unfunded pension liabilities exceeding $20 billion (not including municipalities), and unfunded health care liabilities exceeding $45 billion (including municipalities. At the same time, states will have to deal with the new normal, which is lower economic growth indefinitely and lower returns on invested assets.
Is there any place where one can read about this/ any place where one can see data? Now that we are in the new normal and have seen cities like Detroit go bankrupt, maybe states are facing the chopping block as well (depending if they can still afford to make payments on their liabilities). It will be interesting to compare other places based on their financials as well.
Do states and cities release data like this for the public to see (kind of like open gov api's in csv/json/xml)? I wonder how many more cities/states are taking loan money from other cities/states and are facing the gaping holes in their budgets? It would be pretty cool to throw something together and put it up on github.
These data are probably available buries somewhere in periodic financial reports that many cities publish, but as far as I know, there's no common format, many of these reports are not well readable by tools (best case - nicely formatted PDF with numbers buried somewhere within, worst case - PDF scan of some typed pages with numbers buried within) and as far as I know no site that actually aggregates these data into one database. Given the variety of funds, arrangements, regulations and other things, it would not be very easy to create such a database, probably would require a very large investment. And since it the initiative for local authorities to participate in it is next to zero (worst case, it will expose them for criticism, best case they're OK but not getting any benefit) it would probably very hard to pull off. I'd be glad to be mistaken on this.
I think you are spot on. I've been searching, and mostly coming up with PDF's (that do give the overall numbers) with very little break down for cities.
It's a pity that with all the hand waving over Open Gov initiatives that things like this are still buried, while I can easily find out all the different colors of street lamps implemented for the past 10 years for xyz neighborhoods…
Just checked, and they don't seem to have anything dealing with this.
Though a quick search has led me to find TIF Projection Reports for Chicago[0] from searching "debt obligation" in metro Chicago data [1], but I can't seem to find any past dealings (not sure how to look for it). I want to try to put the revenue generated from taxes (across different sectors if possible), servicing of obligations, population changes, and projected obligations in perspective, and compare to other cities/municipalities/states.
Yes, but because everyone wants their local government to be independent from big bad state and federal governments there's almost no consistency in the format or publication requirements.
Right, so everyone in this case are local bureaucrats who are partially employed by big bad state and federal governments through handouts from taxation and monetary inflation, who don't want to show if the emperor of their local debt obligations aren't wearing any clothes (possibly because of what recognition of misallocation of resources/labor entails), because the public is not demanding it from them today?
There's gotta be money in opening this can of worms up, right?
It isn't a foregone conclusion that states and other governments must increase taxes. If there's less money to go around, they could always spend less money.
I'm not trying to make a political point, but there are certain states where the knee-jerk reaction is all too often to increase taxes - or to tax unpopular things like cigarettes - rather than take a look at the budget and see if there's a middle ground.
Unfunded liabilities are spent money coming due. You can cut services in other places, but that's a similar tradeoff. At the end of the day, why live in a state that taxes you like California but gives services like Tennessee?
That's sort of how I feel about U.S. taxes in general. I paid somewhat lower taxes in the U.S. than Denmark, but it felt like I got a ton less service. Despite paying taxes, there was no public healthcare, even public university charged thousands of dollars in tuition, transit wasn't great, unemployment insurance was relatively poor, public services like libraries were overcrowded, housing assistance had a 10-year waitlist. I'd happily pay more taxes in the U.S. if I felt that I got a high level of services. Or alternately I would feel that a fair rate for the level of services I did get was much lower.
Have you seen that d3 visualization of the US federal budget? It's pretty interesting. Social security, Defense, and Medicare make up the lion's share of spending. you probably don't use these (except defense, arguably indirectly, but I suspect your politics would disagree with the budget size)
He's probably using social security and medicare more than defense. The chance that he gets sick or unemployed is probably a lot larger than the chance that the US gets attacked or significantly threatened.
Knowing that you're covered in case anything goes wrong is enough to make the taxes worth it.
OK, you're trolling here, and if I could downvote you for it, I would; but since I can't, let me try to raise the level of discussion:
> I would prefer to pay for services I use
I invite you, sometime, to think about which services you really use, and try to figure out how much it would cost to purchase each of them if you were doing so on your own. Don't forget: police protection, fire protection, military protection, paved roads, functioning traffic signals and signs, groomed parks, trash collection (some places), up to sixteen years of education, enforcement of workplace safety standards, financial protection if you become suddenly disabled, a legal system in which to resolve disputes. I don't know what your specific situation is, but just about everyone benefits from those government services in the U.S., and you personally may benefit from many others. I'm guessing that purchasing the first three alone, as an individual on a private market, would probably outrun the total you pay in taxes.
You could lower the individual costs to you of a lot of these by finding a bunch of other people who also need these services, and pooling your money to buy them together. That's just how democratic government begins.
> have the money stolen from me by force
This is a dishonest characterization of the authority of a democratic government to levy taxes. Yes, if you don't pay taxes you owe, someone might come and take your property, and those people might have weapons or threaten you with imprisonment. But that is a measure of last resort, which will surely only be taken if you fail to respond to a long line of more reasonable measures. It does a great injustice to people who actually live under oppressive regimes to compare the collection of taxes under a democratic government to the kind of arbitrary, might-makes-right authority those people are subject to.
Furthermore, by characterizing taxes as 'stolen' money, you are implying that you somehow have an absolute or natural right to have it. Why do you think that? No matter what you do for work, the amount of money you take home is not the product of your exclusive efforts. It also depends on the protections you get just by living in a society that provides some of the services I listed above. You would take home a lot less if, for example, you couldn't rely on the police and legal system to prevent armed bandits from plundering your place of business whenever they please. You'd also probably be a lot less productive if you had to worry about such things on a daily basis. There's a lot standing behind 'your' money that isn't yours, by any reasonable measure.
> while people pretend it is moral because it is called "taxes".
A democratic government's authority to levy taxes does not derive from the name, nor from the force that it can, in extreme cases, use to collect them. Like the government's other kinds of authority, it derives (most people think) from the consent of the governed. Behind that phrase are some important and difficult questions, to be sure. But you are not helping to answer them by characterizing taxes as 'stolen' and 'immoral'.
My country had a top tax rate of 85% at one point (with a 10% premium for unearned income). Society didn't collapse; in fact many of us remember that as a golden age.
Are you referring to the US in the 1950s, as tellers of this particular just-so story usually do? If so, that prosperity came about because we had just finished shooting, bombing, nuking, and in general pounding the living daylights out of the rest of the industrialized world.
WWII wasn't about who was right, it was about who was left. To the victor went the spoils. Meanwhile, there was a war to pay for, hence the high tax rates.
This is insane. Either add a sales tax (fixed %) to all B2B transactions (like UK VAT, which you're exempt from if you're tiny) or just don't.
This minefield of regulations about what's taxable and what isn't will just make it much more expensive to sell things, as people pay for lawyers/accountants to figure out what "tax" to add to every outgoing invoice. Since this will decrease consumption, it will reduce other tax revenues, as well as making this pot smaller.
Agreed. I run a small business (thankfully not doing software) in Massachusetts. I don't mind collecting sales tax, but when they make it an overhead nightmare it's impossible to figure out. I'm just one person; when your revenues are in the $10k range, hiring someone to figure it out is impossible. If they just charged a fixed rate for everything it would at least not so heavily favor big business over small companies.
I'm also confused because it seems that most of the reasoning is that companies sell the software for cheap and then make the service contract expensive. I've seen this done by companies like Autodesk and National Instruments for sure, so I can see why they'd dislike it. I design custom equipment, and I'd be tempted to do the same (charge at close to cost for equipment and charge as a service for labor). But this seems like an incredibly poorly conceived way to fix the problem that will cause more issues than it will address, and it's surely not limited to software. I could pull the same trick in any kind of contract work.
I know what you're saying, but I think his point was if you spend $100k developing software, sell it for $100 and sell service contracts for $10k instead of selling it for $5k with a similarly priced service contract.
I have never heard anyone describe "Autodesk" as "cheap software"
However the "Sell software cheap and then charge for service" is the OPEN SOURCE MODEL, where the software is given FREELY, and if you need professional help you have to pay, that is certainly not the model Autodesk uses.
Cheap compared to the service contract. If you sign up for things like paid training they'll basically give you the licenses for free. This is from experience, at least for new companies where they want to get lock-in.
I don't see how it being the open source model is relevant. I'm not judging the validity of the practice, this is literally what the representatives claimed the logic was.
Agree. I lived in Toronto when the Canadian Government introduced the Goods and Services Tax (GST) as a replacement for the old Manufacturer's Sales Tax (MST) of 13% on all products manufactured in the country, as this hurt the international competitiveness of manufacturers.
The proposal was to replace all provincial sales taxes with the GST, and to apply GST to everything, to keep it super-simple to implement. Well the provinces hated the idea, and the tinkerers just had to have exemptions added for various reasons. The result was that there were two sales taxes in Ontario, each with a complex set of exemptions. The popular example was that buying five donuts was taxable, because that was "dining", but buying six was exempt, because that was "groceries".
The MST wasn't just on products manufactured in the country and didn't have much to do with either international or domestic competitiveness; moving to the GST merely lowered taxes on luxury goods at the expense of raising them on what would be considered necessaries in contract law. By waiting a month to buy the (all foreign-made components) stereo God would have had if he could afford it (I had the audiophile bug bad back then) until the system transitioned, I saved over $5000. Meanwhile, folks buying cheap, basic clothing, cleaning supplies, toilet paper and low-end fast food (all of which were exempt from the MST) were making up the difference.
Not quite easy but if your business turns over more than £79k then you will have registered for VAT in the UK.
A US state VAT system would, presumably, result in a matrix multiplier (52 by 52 or whatever the number of different rates are) and require companies to track transactions in the various states.
52x52 would be so easy compared to what we have right now, with sales tax varying street by street based on vague and inconsistent categories. Plus wouldn't it be closer to adding two out of 52 numbers together? Either way you can fit the rates on a single piece of paper and be done with it.
The rule of thumb is that VAT is a tax on consumers, not businesses. Of course there are hundreds of exceptions to that.
If you are a British company buying services from Germany then the seller shouldn't charge you a penny, then you charge the British VAT on the purchase and then deduct it if only the purchase is related to _your_ taxable sale(s).
But if you are a British consumer then the seller should charge you the German VAT.
That's the general case, there are exceptions to that and exceptions to exceptions so don't bite me please :)
That's not true in the EU across the board. If you're buying by mail-order, and the seller is above a certain size (small sellers exempt to reduce the compliance burden), they have to assess VAT based on the shipping address. For example, when I order from Amazon.co.uk to Denmark, Amazon charges me Denmark's VAT rates (which are higher and don't exempt books, alas).
interesting! I was basing my knowledge here on having paid "German VAT" on a smartphone from amazon.de (they had it slightly cheaper and much earlier than anyone in the UK.) Maybe I got confused, but I was sure at the time it was a different %age. Maybe I was above the threshold.
MA is actually in the lower third of states both in terms of their income tax rate (5.3%) and sales tax rate(6.25%). They could increase one or both of those by a small amount, raise a ton more money and still be a low-tax state, without getting into crazy crap like this.
Apples and Oranges. I'm talking rates, you're talking dollars. People in MA make and spend more money than people in Alabama, so you'd have a higher per-capita tax burden even with lower rates in MA.
Per capita income minus dollars taxed or the ratio of the two might be a better measure than either of ours for what you're trying to get at.
Point being, the rates are low and could easily be added to without dumb-ass industry specific things like this.
Whether the sale of customized software is subject to sales tax or exempt, you're going to have "industry specific things like this".
This sort of software is in something of a hazy middle ground between shrink-wrapped software on the shelf and IT consulting services. Taxing it may seem dumb to us when compared with other states, but probably seems like a reasonable move to at least consider to most.
Australia used to have a system like the US model - all of the states had their own arcane sales tax laws. This was scrapped in 2000 in favour of a blanket 10% goods and services tax. It didn't make everyone happy but it was a lot easier to manage.
Also, imports under AU$1000 are exempt from it, which means online sellers like Amazon who ship from the US or UK are fairly popular.
I ran a consulting business in Ontario Canada from 1999-2004
Today the provincial sales tax is included (harmonized) with the federal sales tax as the HST (8% + 5% = 13%) but
back then they were charge separately as PST and GST. Each tax act treated software and software services differently.
When we started we were compatriots with many such contractors in the city. They said, confirmed by our accountant, that our services were not PST eligible so we collected and submitted only the federal GST. This we did for 5 years without any incident; like an audit from the province.
In 2004 our business failed and we were in the process of closing up shop when the feds audited our GST history and found that
in 2001-2004 our GST submissions were off and we owed about 30k incl interest and files. We made arrangements to pay the bill.
Painful but under control.
But, the federal audit triggered a provincial audit and that's when we discovered that the rules for PST regarding software/it services had changed during our run, making the work we did subject to the 8% PST. The rules for that are eerily similar to those described in the OP.
The provincial government determined that the changes to The Act were retroactive and covered all the business we ever did and that with interest and penalties we owed over 700k payable by the end of that week or they would take action.
The company was broke so he action we were threatened with was that, as officers of the company, we were personally liable for the amount and that if not paid by the end of the week, our personal bank accounts would be frozen. This was not good.
Further we found out that at that time, these rules were only enforced when a PST audit occurred. So, when we told the many contractor pals in town that this could be a problem for them. a) they didn't believe it, and b) AFIK none of them changed their practice of collecting only the GST.
Anyways, there was a loophole where a customer could assume the liability for the PST by giving us a waiver form. Luckily the majority of our work was with one customer, a huge corp, who agreed to do this and we were off the hook.
It was a very stressful week.
PS. I have not done any consulting since 2004 so I am not aware of any subsequent changes to The Act. AFIK, none of the contractors I know were dinged the way we were. I figure that harmonization of the taxes means they are collecting tax for both govt entities now.
Your customer voluntarily offered to give away $700k out of the kindness of their hearts, to help the officers of a failed former vendor? Regardless of the size of the corporation, that's pretty incredible. Any idea why they agreed to do that?
Simple. Our former customer is a megacorp and their legal department was not worried about it.
[added] The definition of "taxable service" may or may not have applied in our case. We were without resources to challenge the fact so as far as we were concerned the ruling and payment demand would stand as presented. The mega corp was so large that they had a legal department devoted to minimizing tax and this was just one more thing that department dealt with. A very small thing in relation to the overall dealings of the customer.
For sure, it just seems like the megacorp's legal department would be more likely to decide that the easiest way to minimize the tax was to not voluntarily accept it in the first place.
MA resident. The biggest problem with this is the timing: tell us in July that it goes into effect on January 1, we can deal. Tell us it goes into effect in a week? Hah.
That and the fact that the line between custom software and customizations of pre-written software isn't very clear (or if clear, draconian). The way they wrote it, a custom WordPress template sounds like a customization (therefore taxable), but a site not hosted in a CMS is custom (non-taxable).
This is going to increasingly become common esp as governments try to cover budget gaps. We just went through a sales tax audit for our SaaS company and so are expecting a good size bill for taxes not paid + penalties. Yes - fun stuff.
Honestly, the gov't folks are playing whack-a-mole here trying to keep up with fast-growing areas that don't fit the old "you sell this widget for $X" model they're used to. And so they're going to write overly broad rules as they don't understand technology and related industries. There is no intrinsic reason that SaaS should be free of tax and so the more worrying aspect of this legislation (NY has similar) is that it is so difficult to understand and open to interpretation and the mental tax it imposes on businesses who live in a cloud of of uncertainty about how they should treat their revenues.
That said, I think the idea that it will drive biz out of the state is naive. California is not a particularly biz friendly state in terms of taxes but the Valley and even LA seem to be doing just fine.
I stopped working with a client already over this. Simply put, cash-flow wise I can't currently risk taxes and penalties. It turned a customer into a liability because of the horrible wording and unclear guidance (seriously, they want us to pro-rate by the % of our software used in the state?).
I suspect many other small start-ups will make the same choice we did until this all gets sorted out.
Out of curiosity - what made you feel that burden was placed on your company? From what I saw if you didn't have a MA tax ID and didn't have a physical presence in the state that burden would be placed on the purchaser.
Personally I read that it's kind of like sales tax, and buying online. If the seller doesn't do business in the state you reside it's up to the purchaser to pay the tax.
My lawyer was unable to assure me of this -- the law is terribly written. Due to the nature of the data worked on, I have to travel to MA and do a major component of the work on site.
My understanding is "rewording and clarifications" are coming. I know my client (employes hundreds of people) has unleashed a bit of hell over this -- we will see what will happen.
California's unemployment rate is 8.6%, 1 full point higher than the national rate, in spite of the booming tech sector. A lot of people in California are doing terribly. For example, Imperial county's unemployment rate is 23%. Around half the counties are still over 10%.
SaaS was certainly not "free of tax" before this - businesses pay state income tax and developers who created the service pay state income tax. Now any Massachusetts based SaaS is at a 6.25% price disadvantage to an out of state business.
There are a ton of reasons the stay in or set up shop in California. Talent pool, established community, etc. I can't think of any for Mass. Massholes.
What makes you think this only applies to software developers?
I provide editorial and publishing consulting - I don't write code to sell, but I do configure and patch other people's code. Am I covered by this law? Well, I guess I am.
Easiest solution for me: don't accept clients in Massachusetts.
Oh you can accept them alright. Just recharge the extra tax to the customer, if they're from MA. You don't even need to worry about if it applies to that particular invoice or not - Just add it in any case.
I wouldn't suggest that you keep the funds for your self. You could just pay it through in any case - I'm sure the MA tax department wouldn't mind. And I would also assume that to be a lawful practise.
The point is that you make it clear why your customers are being charged extra. It's then up to them to contact their local representatives and ask them to change the law. If you're not based in MA, it's not really your problem. Sucks for businesses in MA of course.
Wow, so if I run a SaaS from, say, the Netherlands, I'm going to have to pay Massachusetts some kind of extra income tax? What if I don't even know where my customers reside?
The US just became a little more EU. Congratulations!
EDIT: I meant 'import tax' where I wrote 'income tax'. Sorry for the confusion.
It's not an income tax, it doesn't apply to hosted services, and it doesn't apply to companies not doing any business in Massachusetts.
The people this impacts are those currently consulting for MA clients in a capacity that was not considered software sales previously, but now might be. For example, if you sold an analytics package in boxed software, that was always clearly a "sale" and is unchanged. But if your business is based around, for example, having a free SaaS analytics service, along with an offer that enterprise clients can pay you to get a self-hosted version installed on their own servers, that has typically been treated as consulting in MA, but is being reclassified as selling software. The theory is that you are basically selling software (a copy of the analytics package), not really consulting, and the fact that you didn't put it in a box with a bar code is irrelevant. The complaints are largely based around the vagueness of the definitions and the short notice of implementation.
It only applies if your company has a physical presence in Massachusetts (shop or office). State taxation is the same reason Amazon avoid putting warehouses in certain states, since it means they have to start collecting sales tax on everyone in that state. As long as they stay out of the state and do all their dealing across borders, they're don't have to collect the sales tax.
I can't find the link to the previous HN thread about this (and Google isn't helping), but someone had posted that the whole point of this tax was to essentially close a loophole where normal software sales are taxed, but a consulting firm who makes a tiny tweak and sells the software under "consulting services" because they "install a solution" for the client, doesn't charge sales tax.
So if that's accurate, it makes perfect sense. Of course, crafting a law that actually targets this and this only is extremely hard to do, and the short notice here is ridiculous.
But if that's the actual motivation behind the law, it's just a case of where do you draw the line between selling products (taxed) and selling services (not taxed)? Of course there's a gray area between them.
> but a consulting firm who makes a tiny tweak and sells the software under "consulting services" because they "install a solution" for the client, doesn't charge sales tax.
Then the consulting firm would pay the sales tax when they buy the software (before tweaking it).
Until people realize that all taxes are theft, they're doomed to have new taxes imposed on the most productive of them. It's really a simple test to see whether taxes are theft or not: if there was no way for IRS to find out how much money anyone made, would people still be paying taxes? My guess is that 90% of people who preach about the social contract and helping the poor would keep the money.
If taxes are theft, then your use of roads, police, courts, eating at restaurants approved by health inspectors, and much more -- that's all theft of your own.
Sorry, but taxes are not theft in any general way, by any stretch of the imagination.
It takes some seriously deep-seeded, institutionalized indoctrination assaulting your mind through most of your life to believe taxation is not theft.
If you do not pay your tax, violence is threatened and will be brought upon you if you do not comply. This is theft. It does not matter if the thief uses it for altruism. It does not matter if the thief forces roads and other services upon you by outlawing competition.
The fact remains that the initiation or even the threat of violence against an otherwise peaceful person is wrong, and trying to argue otherwise is an indefensible position.
You are free to go off-grid and live in the woods, free from the shackles of taxed services like roads, police protection and tap water. If you still make enough money to pay tax, you'll still technically be breaking the law - but I doubt anyone is going to come into the forest to put you in jail. So in practice you'll be free and clear.
You could also go to a nation in sub-Saharan Africa where there is in effect no government. No taxes! Except for the armed bandits which will take away all your stuff. But surely you can pay out of pocket for a professional defense force to take care of that problem.
Private companies are beholden to private interests. Government is beholden to the public at large. Sure, a private company could design the infrastructure behind the municipal water system, but are they going to design it and price it and service it in a way that serves everyone or are they going to design it so that they maximize profit even at the cost of, say, making it really hard for poor people to get running water? If Comcast ran the water system they'd make basic service very expensive for poor people, they'd constantly try to upcharge you (you'd pay the same price for hot and cold water taps as you would for the triple-play bundle of hot water, cold water, and carbonated water) and they'd return the profits back to the shareholders rather than investing them in improving their infrastructure.
If you're dissatisfied with the level of service you get from the police, imagine how things would look if there were no courts, no prison system, no laws and no police.
The usual rebuttal to this line of argument is that property is theft. If I attempted to peacefully enter your house against your will, you would physically prevent me, or worse. By what right? I never agreed that you should have exclusive use of that land or structure. And yet you deprive me of its use through threats of violence.
If I didn't take this land my house is on from someone else by force or coercion, then you have no such right. Land is no one's product of labor. What's on it - my house - is. It was built on my money and I have all the right in the world to protect it. Communists go against nature when they declare there's no property. It simply doesn't work this way.
If only I was paid 1 satoshi every time someone brings up roads, police and all that stuff when I say taxes are theft, I'd have more than Satoshi has.
Just try to imagine how a society without a government could function and still have all the things we currently have. Try to come up with solutions. Think about the demand side of the equation. Just for once, try to imagine how to organize things in a world where it's, for some reason, impossible to create a government. You'd be surprised of your own ingenuity.
What an absurd argument. Of course no one enjoys paying taxes but that doesn't make them theft. My guess is that 90% of children would rather be outside playing than sitting in the classroom, yet still we objectively know that they're better served by learning.
Likewise, people who gripe about taxation fail to recognize that it's an important, though often annoying process. The number of essential government services that you use everyday, even without leaving your house is surprisingly high.
What's more, this concept that we should leave everyone to fend for themselves and should simply ignore those who are less fortunate borders on sociopathy. I, for one, take comfort in knowing that even if everything in my life falls apart, there are some basic social safety nets in place to keep me from starving to death of the streets.
> this concept that we should leave everyone to fend for themselves and should simply ignore those who are less fortunate borders on sociopathy.
Actually, it borders on something we call "nature." Whatever position we take about nature, what we can't do is ignore it.
The antipode of nature would be a society in which there really is a social safety net that isn't temporary and discretionary, absolutely reliable, and not means-tested. Such a thing would collide with reality, the collision would be spectacular, and reality would prevail.
> I, for one, take comfort in knowing that even if everything in my life falls apart, there are some basic social safety nets in place to keep me from starving to death of the streets.
But there is no such thing, not in the way you seem to think. If such a net existed as more than a limited approximation, it would be destroyed by overexploitation.
Human societies live in nature, and nature is in charge. Nature doesn't waste anything. The human reproductive capacity is limited only by available resources and premature death.
> The number of essential government services that you use everyday, even without leaving your house is surprisingly high.
Yes -- and the number of ways that government can misuse or waste tax revenues is surprisingly high.
I recommend a skeptical attitude toward government and hypothetically perfect social safety nets.
You're young -- you'll figure it out. “Show me a young Conservative and I'll show you someone with no heart. Show me an old Liberal and I'll show you someone with no brains.” ― Winston Churchill
The fact that taxes are operational theft is why taxes that affect everyone are seldom passed. Specific industries or products are targeted because there's less resistance.
For example, many people will sneer at this tax yet cheer on other taxes they don't have to pay.
> It's really a simple test to see whether taxes are theft or not: if there was no way for IRS to find out how much money anyone made, would people still be paying taxes?
This "test" is hilarious!
If stores could not determine how much merchandise you had in your cart, more people would shoplift. So prices in stores are theft! If you could not determine if someone else drove your car, then your neighbor might sneak a joyride. Your owning a car is theft!
> My guess is that 90% of people who preach about the social contract and helping the poor would keep the money.
And if we replaced the social contract with private contracts, nobody would ever cheat on those, right?
An unenforceable law is a bad law. Good laws are designed to solve problems like free riders or production of public goods in a way compatible with rational self-interest. It is not hypocritical to act in your self-interest while simultaneously supporting the rule of law.
If there was no way to detect the contents of the cart, shoplifting rates would increase, but not to a dramatic number. It's because stores don't force people to visit them and buy things. They offer.
Holy crap, everyone here needs to take a deep breath. And, preferably, look at the law itself (not just this article). Despite the author wringing his hands and clutching his pearls about how this law is soooooo hard to understand, it's really not that complicated. It's a sales tax. It works like sales taxes tend to work, with similar distinctions between industrial product (sold as a good) and bespoke construction (sold as a service), and with similar handling of inter-state purchases (if you have a nexus in MA and sell to someone there, you collect, and if you don't have a nexus in MA, they're responsible for use tax).
Let's not mistake the fact that people don't like taxes for some sort of deep, abiding flaw in the legal situation.
(Now, the complaint that implementation was too sudden, that's totally valid. They should have had a several-month gap between passing the law and the tax kicking in.)
I am generally sympathetic to this point of view -- I am not against sales taxes, and as someone who has been in shrink-wrapped software for most of my career, I've had to deal with sales tax pretty much forever (and it's not a big deal, unless you have to deal with WA's per county rules)
In this case, though, they are charging sales tax on some services (that's what the law is about). It has to do with services tied to "goods" or pre-written software. So, integrating, customizing, installing, etc.
I believe that this is the area that might get amended or clarified soon (I have written the MA DOR about it, as I know many have). They need to clarify the line between bespoke and pre-written but customized a little better.
Also, I've heard a few time (but don't know if it's true) that this law is modeled on laws in 24 states. If true, then a lot of people on this list are probably supposed to be dealing with this already.
As I said before when this came up, the only thing that will cause politicians to change the rules is money. As in abandon the state entirely so they don't get anything. Move away, change your business, whatever it takes and then let the politicians (and the public) know why you are giving up on them. Sure it's painful but that's the only thing that gets the attention of the idiots in charge.
One of the extremely tough things about pension liabilities, is that they are costs with present benefit -- they a labor costs from labor performed decades ago. As a state, you cannot even expect that the pensions paid will be spent in your state. Since theses are typically states or municipalities they lack the sovereign ability to print money, and they face the problem that it is relatively easy (versus a nation state) to leave their taxing jurisdiction. This is especially true especially with income tax increases -- those most impacted are also those with the greatest mobility.
That is why the Federal government's response to the Detroit bankruptcy is so important. Are the rest of us going to be on the hook for the unfunded munis or not?
For anyone trying to determine how they can help: make a phone call. Politicians care about phone calls infinitely more than tweets or Change.org signatures. If enough people call the DoR (617-887-MDOR) and their MA representative with complaints, it's very possible that something could change.
> [Mass. DOR FAQ] It doesn’t matter where you host the information. If the business you’re working for has offices in Massachusetts, you have to collect tax.
Sounds like the solution is pretty obvious. And I doubt anyone will miss Boston winters.
You understand that if it drives the business out of state, there is no benefit, no upside. There is no money to go towards STEM, and if the states general economy goes down over it -- it is a net-negative on STEM.
I was just pointing out: if they had no choice, then apply it towards growth instead of some sinkhole project.
But yes, it is a net negative....I just don't understand why they would do this. They should be offering incentives to stay there. This is a self-invoked brain drain.
Although it's certainly obnoxious and poorly thought out, in the long run we development shops will get all the edge cases figured out, though dealing with the legislature is going to be like pulling teeth. Although it would increase startup costs and decrease ROI for us, let's not forget who actually pays this tax: our clients, the buyers of these services. If you are a Massachusetts company and you buy technical services, you now have a really strong incentive to head north to New Hampshire or south to Rhode Island. Massachusetts is also small enough that you might be able to pull that off without losing too many employees.
If you're looking to minimize your taxes, Rhode Island is a poor choice. Property tax in Providence is $33.75 per $1000 ($19.25 for owner-occupied property) levied on 100% of the assessed value. On top of this, the state has a huge unfunded pension liability and municipal benefits liability (~$2.3bn). State employees and teachers benefits add up to another $7bn.
When the other shoe drops, the money is going to come from somewhere or the state will go bankrupt.
Uh, you have a strange view of
1. what the average engineer does all day
2. What the average lawyer does all day
Most lawyers spend time working on client's problems, not "argue all day".
Lawyers bill their time often in 5 minute increments, and only charge for time they are actually doing something.
If the average engineer sat down and tracked what they did every 5 minutes of the day, i think you'd find they are a lot less productive than they think.
In California, lawyers bill hourly and in the $300-400/hr range.
But your right, we should look to Congress because they are actually quite productive. Majority of them have a background in political science and law.
All lawyers have an hourly rate, the question is the minimum time unit they charge for.
I'm not sure what congress has to do with any of this.
I could point out engineers doing plenty of evil unproductive and wasteful things too (malware, fart apps, NSA surveillance applications, whatever), but much like your original complaint, it's just character assassination
It is clear your a lawyer of some kind. I am not trying to demean your profession or others who practice law. I was using role reversal to make a point. I should have used "legislator" instead. So, I apologize for that.
The decision-makers are mostly comprised of people with a background in law. Why is it fair to pass a law for taxing software development but not taxing the act of practicing law?
I just think it is unfair for legislators to protect their professional occupation at the expense of others. There clearly needs to be more diversity among people who hold public office.
As for unproductive engineers - sure, there are plenty. The same applies to all other professions. However, it is hard to argue against the progress made by STEM fields over the last few centuries.
I like this translation of the FAQ into plumbing and carpentry services as an analogy that makes things easier to understand for non-software people (especially the one about RV plumbing that makes it clear that the buyer is liable for use tax for all use of the RV's plumbing within Massachusetts).
I wonder whether you can just 'give away' the free upgrades and the like and charge a standard consulting fee with the operation that folds the price into it.
I'm trying an extreme version of "skate where the puck is headed, not where it's at" with respect to taxes. In my free time I've started designing a tax system which has the potential to be radically simpler, more fair and automated than the current kinds of systems in place. It's fairly obvious than the existing systems are overly complex, unfair, burdensome compliance-wise, confusing and rife for abuse.
Is there a reason this article doesn't mention what the actual tax rate is? According to other articles, it's 6.25%, but that omission from this article seems glaring.
Is it because that number is perceived as low, and mentioning it undermines the argument of how dire opponents think it is?
(Genuinely asking, not trolling; my employer is almost certainly going to be hit by this tax.)
I think it's not mentioned because it's not a separate tax with its own rate, but a change in what categories of transactions sales tax applies to. Therefore the rate is just the regular sales-tax rate. The controversy is over what should be covered by sales tax more than the rate.
It doesn't (and can't, unless Congress changes the law) override the basic requirement that Massachusetts can only require you to collect sales tax if you have a Massachusetts nexus establishing jurisdiction. However if you are 1099 consulting for an MA client, in many cases that will establish an MA nexus, so this will apply to many consultants who have MA clients. On the other hand if you purely operate a website where people can purchase software or hosted services with a credit-card, and you have no MA presence, merely having customers from MA won't establish an MA nexus.
What if you are a SquareUp.com and you send hardware to your customers that enables the out-of-state hosted service? Even if the hardware was free to the customer, as I read the new law in the context of real property that establishes nexus, simply having hardware in the state establishes nexus.
Square readers are tangible personal property, not real property; and they are tangible personal property o the customer once they are sent out, not of SquareUp. So, they have zero relevance to a rule that would make real property owned by SquareUp a nexus in the state, as they are neither real property nor owned by SquareUp.
'real' means land* And improvements to land, like buildings. I'm curious if you thought it was an extraneous word, or what you thought the alternative to 'real' property would be.
*except in Louisiana, where they use French terminology for everything and you have immovable/movable property rather than real/personal
Which is really annoying if you have existing clients in the state. It is really poorly worded and confusing, my tax attorney has no idea where our work product falls tax wise.
I live in Mass, but my consulting company is in CT. My current client is in MA and I do some work for them on site.
I read the law and best I can tell, I don't qualify for this. It seems to be centered around "pre-written" packaged software. I'm writing it right now, so how can it be "pre-written"?
I won't pay this tax until I hear a valid argument that doesn't start with "Well, to be safe...". I'm not paying the state protection money to be safe from vagueness of their laws.
If you are writing totally custom software, you are exempt (IANL -- but, it's pretty clear in the FAQ). If you customize pre-written software, you might have to collect/report tax (that's where it's vague what customize exactly means).
Using a library isn't customizing, according to the FAQ -- as long as the work done to use it is < 10% of the total project. So, if you take 5 months to write an iPhone App, then you need some library, and you download it and add it to your project in 2 days, you are ok. If you were worried, you could line-item it out and charge tax on just that work.
iPhone development, and application development in general, essentially is near 100% interfacing with libraries though. Even if you can add a new library to your project in two days, that work most certainly will be to tie the new library to the existing libraries that you have been building upon from the start (the iOS SDK, in this instance), and thus that work would theoretically still not be exempt.
Interfacing with iOS frameworks is exempt. It's the third-party (not you, not the OS), pre-written software that matters.
My experience is that that is no where near 10% of the work. If it is for your specific custom app, you should line-item the work out.
In this case, if you are audited, they said they are looking for a "good-faith" estimate -- your source-code repository and history of checkins are a journal of this that is much better than anyone would ever have. I would recommend keeping the integration somewhat isolated so that it can easily be compared to the whole.
If you are using PhoneGap or some other application framework, then as the law is written, I think the whole thing is taxable. I think there is a good chance that this part may be amended -- if you are in MA, please write the DOR about this case (I already have).
Email rulesandregs@dor.state.ma.us -- just set up the situation and ask the question -- they will use it pretty much verbatim in their FAQ.
Talk to your lawyer if you doubt me on this one, but Quill vs. North Dakota means that it is the well-settled law [+] of the United States that you cannot be liable for sales or use taxes enacted by a state which you don't have a "nexus" in. What exactly constitutes a "nexus" can be hazy, but the punchline for the overwhelming majority of HNers is that if you do not have an employee who performs work for you within Massachusetts you almost certainly do not have a nexus there.
Theoretically HN users who are also Massachusetts residents will have to start remitting use tax to the state to cover purchases of covered which they made from out-of-state merchants. It is an open secret that compliance in the US with use taxes is nearly zero.
+ Well, until they pass that threatened Internet tax legislation.