Tax Law

State Net Capitol Journal – November 11, 2013: Tech Industry Curbs Taxes

Budget & Taxes

TECH INDUSTRY CURBS TAXES: As the nation's economy has shifted from goods-based to service-based, some states have sought to counter the resulting revenue hit by taxing technological services like the updating of computer software. But few have succeeded.

In fact, according to the non-partisan Tax Foundation, only 10 states — Connecticut, Hawaii, Mississippi, Missouri, Nebraska, New Mexico, South Dakota, Tennessee, Texas and West Virginia — have succeeded in taxing software updates. And all software services are subject to sales taxes in only three states, Hawaii, New Mexico and South Dakota, although states with sales taxes do impose them on software sold on CDs and other physical media.

One reason for the limited number of tech taxes is that the industry has aggressively resisted them. For example, last August the Massachusetts Legislature overwhelmingly approved a 6.25 percent sales tax on computer services and equipment and software modifications to plug a $160 million hole in the state budget. But a coalition led by restaurateurs, who would potentially have incurred the tax whenever they changed a menu item or offered a special, threatened to launch a referendum campaign to repeal the tax.

"We told them [state officials] 'You have no idea. You are striking right at the core of what makes every company here competitive in a global environment,'" said Andrew Bagley, director of public affairs for the Massachusetts Taxpayers Foundation, an anti-tax group.

The issue "turned around in 60 days," said Bagley, with the House voting 156-1 and the Senate voting unanimously to repeal the tax.

Virtually the same thing happened in Maryland in 2007, when the state passed a 6 percent tax on computer services and repealed it a year later. Even the arguments in opposition to the tax were the same, according to Abba David Poliakoff, an attorney who served on the board of the Greater Baltimore Technology Council at the time.

"We brought to their attention that by taxing software services they were restricting the growth of one of the pre-eminent growth industries in the state," he said.

Poliakoff said Maryland's technology industry has only become stronger since then. Instead of defending itself against tax increases, it is now actively lobbying for tax breaks. (STATELINE.ORG)

IL UNLIKELY TO RESOLVE PENSION CRISIS IN FALL SESSION: Illinois lawmakers returned to Springfield last Tuesday for the final scheduled week of their fall session. And while they managed to pass a measure legalizing same-sex marriages in the state (see "IL PASSES GAY MARRIAGE BILL" in Politics & leadership), it appeared unlikely they would agree on a plan to address the state's $100 billion public pension debt in the session's few remaining days.

The state's top legislative leaders have reportedly been more involved with the pension issue recently, but members of a legislative panel tasked with recommending a course of action said there just wasn't enough time to determine the fiscal impact of the various scenarios being considered. Sen. Kwame Raoul (D), who chairs the panel, said because of what he'd learned from conversations among the leaders, he didn't expect a vote in the session's final week.

"I anticipate us coming back for some special session days," he said. (CHICAGO TRIBUNE)

TX HAS MOST RESIDENTS ELIGIBLE FOR ACA CREDITS: Texas has more residents than any other state who are eligible for tax credits on the purchase of health insurance through the new exchanges mandated by the Affordable Care Act, according to a report from the Kaiser Family Foundation. The state has 2.5 million residents earning between 100 and 400 percent of the federal poverty level ($23,550 to $94,200 per year for a family of four), qualifying them for the credits. California has the next highest number of eligible residents, 1.9 million, followed by Florida with 1.6 million. Vermont has the fewest eligible residents, just 27,000 (STATELINE.ORG, KAISER FAMILY FOUNDATION)

BUDGETS IN BRIEF: Nine of the 10 local tax measures on the ballot in CALIFORNIA last week were approved by voters, including a 3/4-cent sales tax increase in Stockton to help the city work its way out of bankruptcy (Measure A). Only the full 1-cent increase in Modesto (Measure X) appeared headed for a narrow defeat (VENTURA COUNTY STAR). • KANSAS officials have reduced their revenue projection for the current fiscal year by $29 million. But a top aide to Gov. Sam Brownback (R) said the revised forecast won't necessitate major changes to the budget (WICHITA EAGLE).

- Compiled by KOREY CLARK

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