[Discuss] Effort to repeal Mass Tax on Software Services

[greg at freephile.com (Greg Rundlett (freephile))]

On Thu, Aug 15, 2013 at 9:53 PM, Tom Metro <tmetro+blu at gmail.com> wrote:

> Greg Rundlett wrote:
> > I for one will...incorporate out of state.
>
> Aside from having to pay corporate excise tax to another state, what are
> you hoping that to accomplish?
>
> The service tax is imposed on customers who reside in MA, so if you want
> to avoid the tax, you don't relocate your business (or its
> incorporation), but instead cease doing business with customers in MA.
>

disclaimers: IANAL; I've only given the legislation a quick review; and I
haven't had a chance to review much of the press/commentary taking place
off-list.

I am still trying to figure out how this legislation will be applied and
what effect it will have.  If ACMEsoft, a MA technology consulting company,
develops websites for it's customers, and hosts those websites on ACMEsoft
servers (through a hosting service provider in NJ) and some of the design
work was done by a RISD graduate in Providence, while the project
management was done online through basecamp, accounting work was done
online through paymo and code was written at individual employee's homes
and loaded onto an online github account while communication was handled
(online) by Google Mail and Apps, where does the sale take place?  What if
some of the work was performed offshore?  I know, if the customer is
located in MA, then the website development consulting sale is considered
to be a MA sale.  What if the customer has offices in other states, but the
contract is handled locally?  What constitutes an office?  If ACMEwidgets,
a customer of ACMEsoft, has a sales office in CA, but the president lives
here in MA, and the company production facilities are always changing, does
that mean that ACMEwidgets should draw up a contract for their website
using their CA address?  How about training?  I assume ACMEsoft would have
to poll their customer ACMEwidgets to ask not only who will be joining the
conference call, but also where they are calling from - for tax purposes?!
 If the sales and marketing staff (in CA) call for support, then it's
tax-free, but if the company president has a support question then it's
taxable?  Or does ACMEsoft write a support contract (tax-free) and invoice
it to the ACMEwidgets CA office (in advance)?  What about future
maintenance?  Does the maintenance task become exempt if I use out of state
hosting services?  The legislation talks about MPU (multiple points of use)
which exempts customers from the tax when the "software" is used outside
Massachusetts.  Does that mean that I should put an out-of-state CDN or
proxy in front of my website so that I can show that 100% of the use is
outside the jurisdiction?  Who exactly is using the software anyway?  Is it
the site visitors, or the company employees?

Although the sales and use tax is levied at customers and depends on their
locus, I think that the complexity of the problem alone (never mind the
added financial incentive) would make a potential customer shop
out-of-state vendors.  So, even though I should theoretically maintain a
local presence to attract local customers, I'm thinking that being a NH
consultant or a RI consultant just got more attractive from a competitive
view.

I live in Salisbury, MA where just over the border in Seabrook, NH there is
a huge amount of trade in cigarettes, alcohol (state-run outlets on both
sides of route 95 with their own exit ramps), tires, home building products
and durable goods.  Somehow I don't think technology consulting will be
much different -- I think a sizeable amount of the revenue that currently
goes to MA businesses will shift to out-of-state providers.  I'm thinking
it's a good idea to be one of those providers.

What do others think?

~ Greg Rundlett
eQuality-Tech.com