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The new software tax in Massachusetts


#1

So I just read that a new tax went into for effect on July 31, 2013 for B2B software and applies to all “computer software, including pre-written upgrades, which is not designed and developed by the author." And it’s clear that no one, not even the State, has clearly defined and identified what situations are or aren’t taxable.

I’m not in Mass. or selling B2B software to customers there, but if you are and you plan on selling your software to someone in Massachusetts, things just got more complicated. The wording is vague, the State is still frequently answering questions(PDF) and they say they plan on issuing amendments by mid-October. Here’s the State’s announcement and a very comprehensive article from a founder in Massachusetts over at Fast Company Labs.


#2

Hmm… The loophole seems to be billing your client for training instead of software.

Suppose you spent 10 weeks building a solution. You then bill the client for 1 week of coding and 9 weeks of training. Training is not covered by the new law, which makes the tax effectively 0.625% instead of 6.25%.


#3

I wonder since my application is a payment gateway if I get around that… I guess it is a bit sketchy.


#4

Even if you get around now, the loopholes will be eventually closed.

The cause of this law is the severe budget deficit. Hence, they will continue to squeeze more juice from the successful businesses. States with the largest debt are the most likely to implement such measures.

Oh, and don’t be fooled by them making surprised faces “This is not what I was voting for!”. It is, and you know that.


#5

I definitely think that they will continue to make this a profit avenue. I currently do not have clients in MA. But it will be interesting to see how this plays out. There has been a long train of wondering how to tax software and internet transactions.