I’ve been trying to figure out if we have any state leadership here in RI. When we have a Governor who gets embroiled in what to call an evergreen adorned in lights in December and a General Assembly who is more concerned about what appetizer they want to endorse, I’m trying to figure out if they have any ability to lead. Apparently, some states have it figured out.
I recently read a press release from Ken Block about a new 6.25% tax that Massachusetts (as of August 1) just created on custom-built software and its implementation. This is not a tax that RI currently has. Very similar to the argument for the “Zero Point Zero” sales tax in RI, that it will attract businesses to RI, this is the same concept. Mass has a great many software firms. Does it make sense for them to take a look at Rhode Island if they’re going to save that extra 6.25% on their costs? Does that at least make sense for them to look into? Of course it does.
What’s also interesting with this topic is that two states have seen this as an opportunity. First, Florida governor Rick Scott put out his own press release:
On Aug. 6, Scott sent letters to 100 Massachusetts business owners, inviting them to relocate to the Sunshine State “because we have the perfect climate for your business.” He trumpeted his state’s “incredible economic turnaround,” and drew a few pointed contrasts: “While Florida’s unemployment rate has seen the second-largest drop in the country, Massachusetts’ June unemployment rate increased to the highest since November 2011,” Scott wrote. “While Florida ranks fifth in the nation for our business tax climate, Massachusetts is stuck at No. 22, according to the Tax Foundation.” And now that taxes are up again — Beacon Hill raised taxes on gasoline and cigarettes, and enacted a 6.25 percent sales tax on software and computer services that has the tech sector in an uproar — “it’s bound to get worse in Massachusetts.”
Very aggressive and well-played. However, another state has jumped into the fray as well.
New Hampshire’s Business and Industry Association says the tax may inadvertently capture New Hampshire businesses with a presence in Massachusetts.
Businesses with a physical presence in Massachusetts providing services covered by the tax to Massachusetts customers may be subject to what’s become known as the ‘‘tech tax.’’
‘‘We want to make sure New Hampshire businesses are aware of this new tax and acknowledge that it could possibly impact where they choose to do business and from whom they choose to purchase goods and services,’’
It’s played off as a “hey, we’re just making you aware” but it can also be very clearly read as “if you got an office in Mass, shut it down and come on back to New Hampshire.
You would think that leaders in the state with the third highest unemployment rate in the country would be looking at any and every possible opportunity to get new businesses and jobs into Rhode Island. At a minimum, a simple public pronouncement from the Governor would be great. How about an advertising campaign on Mass television and radio stations proclaiming Rhode Island as a viable alternative to this new 6.25% tax? Has anything been done? Do we currently have any leader in this state who is capable of sensing this opportunity and jumping on it? How often does a situation like this arise where Rhode Island can benefit without needing to change a single thing? We have this area where RI actually has a financial advantage over its neighbors. Didn’t Speaker Fox and the rest of the General Assembly just overhaul the EDC and create a new Commerce Corp? Wouldn’t something like this be right up their alley?
ADDENDUM: Apparently there is some confusion with regard to my statement about whether the tax includes “custom built” software. Some say it does not. However, some aren’t so sure. Here are some more sources which show the confusion with the law:
Boston Globe: “The amendment offered by the Taxpayers Foundation would not apply the sales tax to custom software or enhancements to standard software programs used by businesses.”
Fast Company: “but if you “customize” or configure the software in any way, it’s taxable”
The State of Massachusetts’ FAQ due to confusion on the law: ”
4. In the Department’s Computer Industry Regulation 830 CMR 64H.1.3 (6) there is an exemption for sales of custom
software and a discussion of custom modifications to prewritten software. How is this exemption to be reconciled
with the new law in which “the modification, integration, enhancement, installation or configuration of standardized
software” are taxable?
A. The regulation to which you refer has been superseded (and thus made obsolete) in some respects by the new
legislation. To the extent that the regulation is inconsistent with any of the new statutory provisions or TIR 13-10, it has
been superseded by the change in law. The Department intends to amend the regulation so that it will reflect the new
statutory rules that are now effective.”
Others who are deeply involved seem to have the same questions and confusion on what customized software is taxed.