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Massachusetts May Try To Tax the Cloud 172

Posted by timothy
from the if-it-moves-tax-it-if-it's-ephemeral-tax-it dept.
CowboyRobot writes "A proposed tax in Massachusetts may affect software services and Web design and hosting. If approved, the state estimates the tax may bring in a quarter billion dollars in 2014 by expanding its tax on 'canned software' to include some elements of cloud computing. The tax would cover custom-designed software and services based in the cloud. "Custom" software includes the design of Web sites, so the cost to local businesses of a new Web site would increase by 4.5% on contracts to design the site, write Java, PHP or other custom code. The cost of site hosting and bandwidth would also be taxed."
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Massachusetts May Try To Tax the Cloud

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  • It's Mass, FFS. They'd try to tax air if they thought they could get away with it.

    • by rudy_wayne (414635) on Monday March 25, 2013 @07:17AM (#43269311)

      the state estimates the tax may bring in a quarter billion dollars in 2014

      These estimates are always way off. And even *IF* it did bring in that much money, the money would simply be wasted on all sorts of uneccessary bullshit and the state will be no better off than they were before.

      • Re: (Score:3, Insightful)

        by Skapare (16644)

        Sucking a quarter billion dollars from the economic recovery.

        • Re: (Score:3, Insightful)

          by bill_mcgonigle (4333) *

          Sucking a quarter billion dollars from the economic recovery.

          Don'cha know, all economic growth comes through government spending. If you believe that, I've got a $125K job for you collecting tolls on the Turnpike.

          • by tehcyder (746570)

            Sucking a quarter billion dollars from the economic recovery.

            Don'cha know, all economic growth comes through government spending. If you believe that, I've got a $125K job for you collecting tolls on the Turnpike.

            Not all, but in a recession, borrowing some money to fund things like building toll roads or schools or laying fibre optic cable could well be a better idea than paying welfare benefits to a load of unemployed construction workers.

            • It might be, but without the profit and price signals it's hard to know whether those are worthwhile investments or malinvestments (which are worse than non-investments). Meanwhile, there's little lending going on - 90% of the new money is created out of thin air, which decreases the value of everybody else's savings and drives up prices for all.

        • by Ksevio (865461)

          Sucking a quarter billion dollars from the economic recovery.

          ...and blowing it back into the Massachusetts economy through government spending!

          Libertarians/Conservatives seems have a strange notion that when money goes to the government, it goes away forever, but apart from being the largest employer, governments spend in ways that can help the lesser off and often have restrictions on the money going a far.

    • New Hampshire will crow about having no cloud taxes, but never mention that they have no clouds and only siphon off of those in Massachusetts.

      • Meanwhile at the corporate headquarters, in Delaware, Dr. No convenes the board.

        First agenda item. 'Screw the massholes!'

    • by Lucas123 (935744) on Monday March 25, 2013 @10:51AM (#43271641) Homepage
      Massachusetts' expertise at finding new things to tax is only surpassed by its ability to spend like drunken sailors. Case in point, the Central Artery/Tunnel Project in Boston, also known as Big Dig. The project, begun in the 1990s and completed in 2004, was the most expensive highway project in the U.S. When construction began, the Big Dig's cost was estimated at $5.8 billion. Eventual cost overruns were so high that the chairman of the Massachusetts Turnpike Authority, James Kerasiotes, was fired in 2000.The total expenses eventually passed $15 billion. Interest brought this cost to $21.93 billion. So, almost a 400% cost overrun. Oh, and BTW, the tunnels have been falling apart lately. One person was already killed by falling ceiling panels, and remediation work has been flourishing.
      • Massachusetts' expertise at finding new things to tax is only surpassed by its ability to spend like drunken sailors. Case in point, the Central Artery/Tunnel Project in Boston, also known as Big Dig. The project, begun in the 1990s and completed in 2004, was the most expensive highway project in the U.S.

        When construction began, the Big Dig's cost was estimated at $5.8 billion. Eventual cost overruns were so high that the chairman of the Massachusetts Turnpike Authority, James Kerasiotes, was fired in 2000.The total expenses eventually passed $15 billion. Interest brought this cost to $21.93 billion. So, almost a 400% cost overrun. Oh, and BTW, the tunnels have been falling apart lately. One person was already killed by falling ceiling panels, and remediation work has been flourishing.

        ===
        Where I live, if I call a plumber, I pay his bill, and federal and provincial taxes. Ditto for painter, electrician, I have to pay sales taxes.
        So what is the difference if the programmer works to build a website. Do you pay his invoice without paying sales taxes?

        Mass is discovering that they omitted this revenue stream. Thats all.

        • by ncc74656 (45571) *

          Where I live, if I call a plumber, I pay his bill, and federal and provincial taxes. Ditto for painter, electrician, I have to pay sales taxes. So what is the difference if the programmer works to build a website. Do you pay his invoice without paying sales taxes?

          Sales tax is payable on goods, not services. Building a website is a service. You don't pay sales tax when you procure the services of a doctor or lawyer; why would web coders be any different?

    • by emho24 (2531820)
      There comes a point at which the difficulty and burden of complying with massively complex taxes and regulations becomes too great, and the small business says "It's just not worth the effort".
      • by tehcyder (746570)

        There comes a point at which the difficulty and burden of complying with massively complex taxes and regulations becomes too great, and the small business says "It's just not worth the effort".

        Civilisation is not a free gift.

  • by houbou (1097327) on Monday March 25, 2013 @07:15AM (#43269299) Journal
    R.I.P.
  • by Virtucon (127420) on Monday March 25, 2013 @07:16AM (#43269307)

    I am a bit confused since "custom" software may be developed outside of the boundaries of Massachusetts and its utilization, while using a network in the state would already be covered. Network Connectivity is already has taxes associated with it. Businesses clearly pay taxes in the state as well as do consumers. Software companies who write software working in the state pay taxes as well.

    This looks more like an starting effort to obtain a franchise or privilege tax for using the Internet not a sales tax of any kind.

    • by tgd (2822) on Monday March 25, 2013 @08:03AM (#43269615)

      I am a bit confused since "custom" software may be developed outside of the boundaries of Massachusetts and its utilization, while using a network in the state would already be covered. Network Connectivity is already has taxes associated with it. Businesses clearly pay taxes in the state as well as do consumers. Software companies who write software working in the state pay taxes as well.

      This looks more like an starting effort to obtain a franchise or privilege tax for using the Internet not a sales tax of any kind.

      I believe MA, like CA, only charges sales tax on software physically delivered into the state. Cloud hosted software, even if its "projected" via something like Citrix or remote desktop, doesn't. (So if you buy a $1m ERP system and install it in your business, you pay sales tax on it -- but if you buy $1m ERP system and its hosted out of state and you are using a published application or web browser to access it, you don't.)

      And that can be a lot of revenue, especially given the number of very high tech pharma companies and the like. MA wants its sales tax on that $40m genetic sequence data mining system.

      • by Virtucon (127420)

        but if you buy $1m ERP system and its hosted out of state and you are using a published application or web browser to access it, you don't.)

        and you are using a published application? That's confusing. The referenced article indicates custom software here. Just because you use something within a state boundary doesn't necessarily mean a sales tax is applied if you use it out of state. I believe that's covered under interstate commerce law. But I do understand privilege or franchise tax for being able to do something within a state. Franchise taxes abound in this country including MA and CA. But if you buy something somewhere else and use

        • by Grishnakh (216268)

          Just because you use something within a state boundary doesn't necessarily mean a sales tax is applied if you use it out of state.

          I don't think that's relevant here; I think they're talking about Mass. companies buying and/or using software (including custom-developed stuff, including custom-developed websites), not out-of-state entities buying software made in Mass.

          As an example if I make a phone call to somebody else out of state are they going to charge me for that even though I'm not a resident but I p

          • Do you know how fast a Mass corporation becomes a Delaware/Nevada corporation?

            • by Grishnakh (216268)

              I'm not a business law expert, but it seems to me that the registration of the company is somewhat irrelevant. If your company has an office in Mass. and purchases cloud services (for that office in Mass., not for offices in other states), it'll still be subject to the tax.

              • If your a non-mass company purchasing cloud services from your HQ, mass is going to have one hell of a time accounting for the share of the value of the software services used in their state.

                On the other hand, if the HQ is in mass, the company will have one hell of a time convincing the massholes not to tax the whole invoice amount.

                • by Grishnakh (216268)

                  It shouldn't be that hard: you'd just count up the employees working in Mass, and divide by the total number of employees worldwide. For a corporate cloud email system, that should be a good approximation. Of course, enforcing this doesn't sound very easy or practical, especially if the cloud app isn't something used by all (or most) employees, but rather a small subset of them. However, corporate taxation and accounting usually isn't like individual taxation: due to the deep pockets, governments are mor

                  • That would be one of many possible ways to attribute the costs of such a system (by head count).

                    Want to bet the accountants can come up with a dozen others and tie up the auditors arguing about which is the correct cost accounting until it has cost the taxing authority more then then the tax just to calculate it.

                    The flip side of that is the Mass company that starts with a tax bill for the whole amount.

    • by lseltzer (311306)
      Why do they need a motivation other than revenue? In fact, revenue should always be the only motivation for taxes. When the government tries to do social engineering through the tax code they always botch things.
      • by Grishnakh (216268) on Monday March 25, 2013 @09:55AM (#43270897)

        This is a rather stupid comment: there's no way to avoid doing social engineering with taxes. Whatever you do with taxation, it's going to affect society somehow. Just making a choice between income and sales taxes affects society, and is in effect "social engineering". Sales taxes discourage purchasing. Or how about property taxes? Those discourage purchasing and owning property (and frequently drive people to move to locations with lower property taxes). Most places have all three; how you set their levels relative to each other amounts to "social engineering": should you have small sales taxes and huge property taxes? Or low property taxes and huge sales taxes? Should you tax staple foods or not? Taxing staple foods isn't exactly good for poor hungry people so if you do, you're going to get a lot of people complaining about that.

        In short, there's no way to avoid "social engineering" with taxation. So even though it's frequently done badly, an attempt does need to be made to do it well and fairly.

        • by Firethorn (177587)

          there's no way to avoid doing social engineering with taxes.

          There's taxation as social engineering, then there's social engineering from taxation. I figure that Iseltzer was talking that taxation should not primarily be a form of social engineering, but of revenue generation.

          The problem you get with areas like Massachusetts is that they go WAY overboard with the 'taxation as social engineering' idea, viewing the engineering as a primary motivation. Well, either that or they're for so much in spending that they have to excessively 'massage' tax rates and have speci

          • by Grishnakh (216268)

            I think we're probably splitting hairs here, but I hear this "taxes shouldn't be used for social engineering!!!" mantra fairly frequently, and that's exactly what it is: a dogmatic mantra. Sure, I'll agree with you that a system like that which you describe (income taxes somewhat progressive, homestead exemption, not taxing food, sales/income/property taxes balanced, etc.) sounds great, but to many people, they're going to bitch about all those too. Just look at all the Flat Tax promoters: they're going t

          • by tehcyder (746570)
            The simplest tax system is to charge everybody 100% on everything, then distribute the proceeds according to need.
    • by Anonymous Coward

      They're working on making a Federal level Internet sales-tax. What possesses you to think that they're going to stop at just that without us pushing back hard?

  • Wrong Title (Score:2, Redundant)

    "Tax-achusetts May Try To Tax the Cloud"

    There... fixed that for you!

    • Here's a suggestion... Why don't they just skip the "pleasantries" and just tax EVERYbody 100% of EVERYthing.. You know that's where states like the People's Republics of Massachusetts, New York and California (and a few others) are heading towards.. All these new taxes that these "bastions of socialism" keep dreaming up and passing simply cause a mass exodus of businesses (and people) from these states.. Unless they want to quit hiding their true intentions and put up concertina wire and trip mines around

  • Opposite effect (Score:4, Insightful)

    by roman_mir (125474) on Monday March 25, 2013 @07:22AM (#43269345) Homepage Journal

    If approved, the state estimates the tax may bring in a quarter billion dollars in 2014

    - right, because taxing something creates more of it rather than reduces its amount.

    FTFA

    Most of the tax would be levied against integrators, developers and other companies producing custom software. It's not clear exactly what services would be covered by the tax, but if hosting, bandwidth, storage, security and other services are taxed, presumably the tax would affect any service based away from the premises.

    Here is what will happen: Massachusetts will lose some of the integrator business, which will be provided from somewhere else. It's not clear what exactly they are proposing to tax of-course, they have no idea what they are talking about, but they sure as hell want to tax something there and that means raising costs and reducing business activity, whatever they do, they should expect less business, not more. I would be surprised if they managed to collect any taxes from this, they may end up with less tax dollars overall if/once they implement this idea.

    • by BLKMGK (34057)

      Taxing anything that can so easily be done from elsewhere seems like a pretty stupid idea. It will be like trying to squeeze mercury...

      • by Skapare (16644)

        New Hampshire?

        • Re: (Score:3, Interesting)

          by ChrisMaple (607946)
          New Hampshire is already heavily politically polluted by its propinquity to Massachusetts. Please do not encourage more shit heads to move here from Boston and Cambridge.
          • New Hampshire is already heavily politically polluted by its propinquity to Massachusetts. Please do not encourage more shit heads to move here from Boston and Cambridge.

            Statistically speaking, Masshole transplants tend to vote along with New Hampshire values. I realize there are very vocal (and hypocritical) exceptions.

            And, yes, I'd about to read the article to see if it affects a colo'ed rack I tend to in MA. It's possible that it makes sense to move it out of MA.

    • by Anonymous Coward

      Because many cloud services are available in more than one state, or have physical facilities in more than one state, questions about which state has jurisdiction and what tax might apply become complicated very quickly, according to KPMG.

      Yeah, and how are they going to handle things developed and hosted offshore?

      This is just politician grandstanding that will be impossible enforce.

      And 4.5% of what exactly - price of the development service? Please, I can have a solution developed for free but with a provision that a (non-taxed) maintenance contract is purchased.

      Goofy taxes like this will be so easy to get around - especially for the multinationals.

      if anything, Reggy the local retailer will be the ones paying this.

    • by sfm (195458)

      So how long will it be until business starts leaving MA in significant numbers, similar to what is happening in CA?

      • Re: (Score:3, Interesting)

        by roman_mir (125474)

        If somebody wants to start a new business in USA, they should definitely do it somewhere in Texas but even better, Puerto Rico [bloomberg.com]. If you start a company in Puerto Rico, they promise 30 years of no capital gains taxes, that's beside the business income tax of 4% and there is no federal US income tax.

        So if you start a company and it becomes successful, you definitely want to be there, you can sell your business and pay no capital gains. Clearly they won't be following MA example with this nonsense either.

        • Oh, they promise. Well, Im sold.

          • by roman_mir (125474)

            It's the law in Puerto Rico

            The zero rate applies only to income and gains derived from investments made after residency has been established and will last until 2035. Income and gains before residency are subject to the island's 10 percent capital gains, but for investments sold after 10 years and before 2035, the rate drops to 5 percent. In America, the tax rate on long-term capital gains and dividends for the top 2 percent is just under 24 percent.

        • by HCase (533294)

          "they should definitely do it somewhere in Texas "

          Texas already directly taxes computing services.

      • by alen (225700)

        so why is it that the high taxed blue states have more people and more economic activity than the freedom loving low tax rate red states?

        • Well causality is hard to establish for something like that. But I think it is accurate to say that more people means more economic activity, all else being equal. And they certainly weren't lightly populated states until someone came along and raised taxes on them.
        • by moeinvt (851793)

          More people = more economic activity in general. I don't think you can make such a sweeping generalization either. How is Maine doing vs. Texas or S. Carolina for instance?

          As for Red/Blue are you just talking about the presidential election? There are many states where you have a mix of reps, senators, governors and state legislatures, so it's hard to paint a state a single color.

          My question to that question is:

          If the blue states think their political philosophy and public policy are so vastly superior,

        • Most big cities become big by being natural trade hubs, such as ports (New York, San Francisco) or transportation pinch points (Chicago?). Once established, workers of all sorts are attracted; as they become crowded the middle class moves to suburbs. Left behind are the poor in slums, vulnerable to political envy messages, and the rich in protected enclaves, some of whom lust for power. Because cities are densely populated it's easy to sell the message that everybody depends on everybody else; and because w

        • by stenvar (2789879)

          It's not that hard to understand, and it's a weaker version of what happened with the industrial revolution and subsequent rise of socialism in parts of Europe:

          (1) States develop rapidly and the economy grows rapidly.

          (2) Lots of people move there, forming big urban centers. Lots of unionized jobs and manufacturing move there.

          (3) As a result of (2), many people start voting for left-wing candidates.

          (4) As a result of (3), taxes get raised and governmental power increases.

          The high taxes, high government spend

  • by Anonymous Coward

    It appears that Massachussets has a new policy of expelling SaaS and web service business from Mass to other states. Brilliant! Squeeze the tax base, it squishes away to somewhere else.

  • Suggestion to US GOVERNMENT
    make it simplemake it simple- Remove cash
    make all transactions electronic
    take 3% on every fiscal transaction, even allowances

    Just get it over with already

    • by drinkypoo (153816)

      Will you be happy when you are utterly unable to purchase anything which the government does not approve of? Fascist.

  • by golodh (893453) on Monday March 25, 2013 @07:42AM (#43269459)
    All civilised countries in the world have a tax known in various forms as 'value-added tax' (or VAT). The US has sales tax. See e.g. http://en.wikipedia.org/wiki/Value_added_tax [wikipedia.org] The difference between sales tax and VAT is that VAT is levied through out the supply chain but paid only by the end customer as firms are obliged to charge VAT when they sell things, but get VAT tax credits when they purchase.

    What Massachusetts is doing here is to bring its tax code more in line with de-facto international standard. Something that will happen anyway over time.

    And no, there are no discernible deleterious effects of VAT, and it doesn't affect international competitiveness much (China,India, Mexico, Canada and the EU all levy VAT). So it may be delayed for awhile, but given the current state of federal finances probably not for more than a few years or so.

    • by Attila Dimedici (1036002) on Monday March 25, 2013 @08:21AM (#43269809)
      An important point, the U.S. does not have sales tax, many of the states within the U.S. have sales tax. However, not all U.S. states have sales tax.
    • by RevDisk (740008)
      Every time someone says "We should have a VAT here in the US", my response is "Kill it with fire. Then nuke the ashes to be sure."

      VAT is additional paperwork, and bloody annoying at that. Sales tax is at least straight forward, and usually fairly easy to audit. I've heard people say "Well, we can replace income tax with a VAT system." Yea, nope. You'll end up with both. Maybe one or two places went to VAT without an income tax, but in the States, it'll be both.

      I lived in Europe. There were many parts
    • there are no discernible deleterious effects of VAT

      All those countries with VAT suffering massive unemployment and on the verge of total collapse is of course just a coincidence. Correlation is not causation after all. Clearly what China, Mexico, and Europe need is an even higher VAT. Turn it up to 110%!

    • All civilised countries in the world have a tax known in various forms as 'value-added tax' (or VAT).

      Putting the word "civilized" in front of a noun doesn't make it right nor does it negate the idea that the action isn't backed by the threat of force.

    • by MaWeiTao (908546)

      You wouldn't be so keen on VAT if you were paying it yourself. Europeans don't just pay VAT, in many cases there are also sales taxes.

      It doesn't end there, many nations also impose all kinds of tariffs on a wide variety of goods for a variety of reasons. Only an idiot wouldn't expect those costs to be passed onto the consumer. In fact, despite the deceit on the governments, they know full well consumers end up paying the tariffs. This is why, for example, EU started imposing anti-dumping tariffs on Chinese-

      • by F.Ultra (1673484)
        There should be no European country with VAT that also has a Sales Tax, please enlighten me about this mystery country of yours. Oh and btw, anti-dumping tariffs (aka customs duties) is something that you have in the US as well.
    • VAT doesn't affect international trade because it just doesn't apply there. That's a very, very profitable loophole : export over half your sales and the VAT office will pay you instead of the other way around. It's been abused in a lot of creative ways, and that's not going to stop, like, ever.

      The effect on internal economy is to make a country poor. Can't have a rich country with poor people, and VAT diminishes buying power by its amount. Here in Belgium it's 21% on everything that's not food. Imagine hav

      • by stenvar (2789879)

        VAT doesn't affect international trade because it just doesn't apply there.

        It does affect international trade: it discourages consumption, turning your country into a country of worker bees producing for export who themselves are strongly discouraged from consuming. It makes for a more "positive" balance of trade and a poor population, kind of like ... Europe actually.

    • by stenvar (2789879)

      What Massachusetts is doing here is to bring its tax code more in line with de-facto international standard.

      Good for them. They can finally demonstrate by direct experiment that the "international standard" is broken, just like so many other things Europeans do.

      And no, there are no discernible deleterious effects of VAT, and it doesn't affect international competitiveness much

      VAT is, in fact, great for international competitiveness, on paper: it decreases consumption, decreases imports, improves trade surpl

  • Then I am in favor of it. Keep the business and $$ inhouse.
  • Unlike most of you, it would seem, I did RTFS, along with the links from it to more stories: it seems that Massachussetts is just one state/location that is doing this sort of thing, along with NY, TX, UT, and Chicago.

    Bottom line: they tax software, software-as-a-service (SaaS, a new acronym to me), internet access, hosting, etc; this is just another item to add to the list, in their eyes. At first, I was going to say, "Another reason to use Free Software," but then the enormity of the truth crushed me bac

    • Hmm... so a tax on top of a tax on top of a tax...since I don't see them stopping to tax profits, this will be right on top of those (and if you don't make any profits---I guess you'll still be on the hook for this softwate as a service tax).

  • by Squidlips (1206004) on Monday March 25, 2013 @08:41AM (#43270025)
    Massachusetts will squander any additional tax revenues and be back the next year asking for more taxes. The state has an unlimited capacity spend (waste) tax dollars; the Big Dig construction project was supposed to cost 2 billion but came in at 14 billion and is so defective that it killed a driver a few years ago...
  • ...just didn't have enough reasons to movie to Texas [battleswarmblog.com] already...

    • by Anonymous Coward

      Movie to Texas? Like 'Friday Night Lights'?

    • by HCase (533294)

      I hate to be the one to break it to you, but Texas already has a direct tax on computing services.

    • As a Texan (Houstonian), we do not want Yankees. Their like locusts that bring their failed urbanite liberal voting policies with them and blight out the local economy. Besides, they drive like assholes! And the honking is a new thing around here. Six years ago, the traffic was a lot more quite.

      • by TheSync (5291)

        Their like locusts that bring their failed urbanite liberal voting policies with them and blight out the local economy.

        Yeah, as if Austin isn't contributing to the Texas economy...since 2004, an estimated 168,500 new jobs have been added to Austin's regional economy, and regional payroll increased by $8.46 billion.

      • by jittles (1613415)

        As a Texan (Houstonian), we do not want Yankees. Their like locusts that bring their failed urbanite liberal voting policies with them and blight out the local economy. Besides, they drive like assholes! And the honking is a new thing around here. Six years ago, the traffic was a lot more quite.

        As a Western transplant to the South, I can say that people do not honk here enough! I've seen people stop (on a green light) to let someone make an unprotected (read w/o right of way) turn across a major road. You could sit at the front of the line for a green light for the entire cycle and no one would honk and wake you up from your day dreaming spell. There is a time and a place for courtesy, and there is nothing wrong with a polite honk to remind a person that there are things going on outside of thei

    • by dkleinsc (563838)

      Why would you move to Texas when you could just move to nearby New Hampshire? No sales tax, no income tax. Depending on where your employees live, they might not even have to move.

  • The more businesses will slip through your fingers. Seriously, somebody esplain this to me: Gasoline? It's gotten too expensive. Food? It's gotten too expensive. Healthcare? It's gotten too expensive. Housing? It's gotten too expensive. So why the f*ck isn't government too expensive?

  • by Fantasio (800086) on Monday March 25, 2013 @11:22AM (#43272197)
    Taxachusetts.
  • Massachusettes has decided to run out any software companies or hosting companies from its state. It no longer wants those sorts of business inside its borders.

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