State Rep. Don Humason (R-Westfield) discusses a controversial new tax on software services during a public meeting yesterday in the Lang Auditorium of the Westfield Athenaeum. (Photo by Carl E. Hartdegen)
WESTFIELD – In the Lang Auditorium of the Westfield Athenaeum yesterday, one of the Commonwealth’s foremost advocates against a recently implemented tax on software services spoke at one of the final sessions in the 2013 GOP Technology Tax Business Roundtable series.
Representative Donald Humason Jr. (R – Westfield) addressed a small group of business owners, media, and other concerned citizens at the Westfield session.
After holding discussions in Devens, Mansfield, Middleborough, Plymouth, Southbridge, Wakefield and Westborough prior to the Westfield discussion, Massachusetts Republicans are hoping to spread the word regarding this tax, which takes a 6.25 percent cut of select software services, and which House Minority Leader Bradley Jones of North Reading calls “crippling” and “reckless”.
“We were told repeatedly by the majority party that it was a limited tax with a limited impact, that businesses would welcome it because it wasn’t going to be very onerous to implement,” Humason said. “And since it went into effect on July 31, just the opposite has happened. Its actually very onerous.”
Representatives Nicholas Boldyga (R-Southwick) and Todd Smola (R-Palmer) were unable to make it to the discussion, but Humason spoke for his colleagues, referencing the month-old tax and GOP leadership’s efforts in Boston to affect change, including delaying implementation and studying the tax prior to implementation, all of which “fell on deaf ears” of Beacon Hill Democrats, according to Humason, who is set to make a run at the Second Hampden and Hampshire District Senate Seat vacated by Michael Knapik in an October 8 special election primary.
“People who are impacted dont know what is coming, so to be safe, they’re collecting taxes on everything because they don’t want the Department of Revenue to say later ‘Guess what? You sold this and did this and didn’t collect any taxes, so we’re going to penalize you.’,” said Humason.
At-large City Councilor David Flaherty is owner of DFA Group, LLC, a Westfield-based company which employs seven workers, and services over 1,200 customers.
Flaherty’s main beef with the tax is with the Department of Revenue’s inability to define what exactly is taxable.
“Is it just labor? If I send someone to fix a computer, what is taxed? I couldn’t get those questions answered,” said Flaherty earlier this month. “They’re hitting a very important industry to Massachusetts with this tax, 6.25 percent is a lot of money.”
The tax, which was originally supposed to bring in $161 million in revenue according to Senate Committee on Ways and Means Chairman Stephen Brewer (D-Barre), is allegedly set to bring in closer to $500 million, according to Michael Widmer of the Massachusetts Taxpayer Association.
Several area software company owners and CEOs were on hand yesterday to share their concerns with Humason.
“I’m talking with my accountant on a bi-weekly basis trying to figure out what this (tax) is,” said Ed Watson, CEO of Mobius Works, a Westfield-based computer and IT company which does business around the Commonwealth and beyond. “It’s money I should be spending to create jobs, which my company has done for the past five years while the economy was in the toilet.”
“I thought labor was tax exempt? That, to be taxed, something had to be tangible personal property?” asked another businessman.
In response, Humason would go on to reference an attempt in the ’80s by then-Governor Michael Dukakis to bring about a sales and service tax, which was so wildly unpopular, that it was repealed almost immediately.
Now, a software service tax is in place, and the neccessity of it is being questioned by Beacon Hill Republicans.
“Our economy was starting to take in revenue higher than we anticipated,” said Humason. “This past fiscal year, Massachusetts took in $627 million more than we expected because the economy is getting better, which is evidence why this tax wasn’t necessary.”
Humason said he was unsure why the software industry was being hit, but that a lack of organization among employers and employees in this still-growing industry may’ve contributed to it being selected for taxation.
“If we don’t see revenue, we can’t grow,” said Jim Ruell, owner of Network and IT Solutions in Westfield. “I can’t see me growing my business with this tax. And I’m just a one man shop. I feel bad for these guys, Mobius and Whally, because it’s really going to affect them.”
To Ruell, the situation reeks of contradiction.
“They want to put people to work in these high-paying tech industries, but then they’re going to penalize these industries so we can’t put people to work,” he said.
Small and large computer software businesses alike shared the negative sentiment.
“There’s no question it’s going to decrease our business,” said Tom Hanson, vice president of Whalley Computer Associates Inc. in Southwick. “The question is ‘how much?'”
Hanson believes that Whalley, which employs 140 people and brings in around $90 million in revenue, will face an uphill battle when competing for business with software companies from other states.
“I win some, I lose some,” said Hanson. “But I’m at a six and a quarter percent disadvantage… I know I’m going to lose more than I did in the past.”
“They have no clue what we do,” Watson said.
He would go on to add that, due to the ever-expanding nature of software technology, more and more industries will be coming under the purview of the software tax.
“And we’re gonna change it again in six months, so they’re basing what they’re taxing on something they don’t know anything about. It would be like me trying to tax you on how you legislate,” Watson said to Humason. “I don’t know how you do it, Don. I just know a piece of paper comes out at the end.”
“We are confused. We’re not idiots,” he said. “We (the software industry) are fairly intelligent people, and we can’t figure this out.”
