Massachusetts will not expand sales and use taxes on software and computer services after all.
House Speaker Robert DeLeo and Senate President Therese Murray announced this morning that they intend to repeal the controversial $160 million levy passed several months ago as part of a package to fund improvements to the transportation system.
The two leaders said they will not propose a new tax to replace the software tax revenue, but will instead close the gap using a budget surplus. The repeal will be retroactive to the July 31 effective date of the tax.
Announcement of the repeal effort came a day after Governor Deval Patrick, who initially proposed a more expansive version of the software tax as part of his $1.9 billion tax package in January, changed his position and opposed the measure. The tax has generated withering criticism from the business community and a 2014 ballot question calling for its repeal.
"It is now evident that the impact of the tax is broader than any of us anticipated or intended," Murray said.
"So as a result of these discussions, we will support repealing the sales tax on sofwtare services and will place this repeal before the membership for a vote."
John Regan, Executive Vice President of Government Affairs at AIM, who attended the announcement, commended the decision by Murray and DeLeo.
“Given the potential damage to the reputation of Massachusetts as a center for technology innovation, and the widespread confusion caused by the tax, we think that Speaker DeLeo and Senate President Murray are taking a prudent course in seeking repeal,” Regan said.
The Legislature overrode Governor Patrick’s veto on July 24 to enact a transportation finance bill that expanded the definition of taxable services to include “computer system design services” and “the modification, integration, enhancement, installation or configuration of standardized software.” The expanded definition meant that the rendition of computer system design services and the customization of otherwise standardized computer software was subject to sales tax in Massachusetts.
The legislation specifically excluded data access, data processing and information management services from the definition of taxable services.
The repeal effort will begin in the House of Representatives.