The Massachusetts Software Tax

I am lucky enough to work in an industry that, compared to other industries, is lightly regulated. When odd regulations pop up, however, they are glaring. Massachusetts has apparently passed a new tax law for software companies who do any business at all in the Commonwealth. It makes no sense, even after Fast Co Labs tried to explain it:

This added levy is not only cumbersome, it’s super confusing. For example:

  • if you install software (Microsoft Office, Constant Contact, Drupal, etc.), it’s taxable
  • if your client clicks the mouse to install it, it’s not taxable
  • training your client to use this software is not taxable
  • but if you “customize” or configure the software in any way, it’s taxable
  • if you don’t actually make any changes, but just discuss them and plan them, it’s consulting and not taxable
  • if you create graphic design mockups, it’s not taxable
  • but as soon as you implement that design (i.e. program it), it becomes taxable if you’re using “prewritten” software “not developed” by you (such as WordPress)

At least, that’s how we think it works.

Read the entire article. I emailed the article to my accountant, here in Oregon. Sadly he has to be an expert in tax law for all 50 states and maybe overseas, too.

We are starting to see the desire to charge software taxes, first with the Internet sales tax and now with laws like this. Our landscape is only going to get more confusing. And, sadly, we are all going to have to be more active politically to protect our sanity.

via O’Reilly Radar