On July 31st 2013, Massachusetts law makers quietly enacted a new sales tax regulation hidden within the much reported on Gasoline and Tobacco tax increases.
Many IT service providers are still not even aware of this new regulation or how it will affect both their business and that of their clients.
Basically, effective July 31st, Computer Service providers and consultants are now required to charge 6.25% sales tax on all professional services relating to the services defined in the NEW definition of “services”.
The “Legal Speak”
According to The Mass Department of Revenue (DOR) “The term “Services” shall be limited to the following items, telecommunications services, computer system design services and the modification, integration, enhancement, installation, or configuration of standardized or prewritten software.
The application of the sales and use tax to Computer/Software Services will not apply to personal or professional services that do not themselves constitute computer system design. Or software modification services and that are not directly related to a particular system integration project involving the sale of computer hardware or software. Two examples of such non-taxable and professional services may include (1) consulting and evaluation services with respect to existing computer systems to identify deficiencies and needs and (2) services to prepare a business to use modified software, such as training.”
The DOR intends to provide “additional guidance” in the future regarding application of this services tax. The initial guidance provided by the state, as stated in TIR 13-10, is currently very limited and the law, in its current iteration, is very open ended and as should expected, favors the State and not the consumer of these types of services.
So, in a real life example, this means that when a consumer purchases a piece of software (say an antivirus program)and then hires a third party (computer guy) to install and configure that software, the third party (computer guy) is required to charge the consumer 6.25% sales tax on the hourly rate charged to perform the installation.
Another example – when a consumer buys a new computer system and then engages a computer service company to install and configure it for them – the computer guy must charge sales tax on the service rate he charges to perform this work. Business network service and installations will incur the same 6.25% sales tax as well.
One more example – If you or your company hires a web designer/consultant to build, update and/or modify your website, this type of service is now taxable as well.
My interpretation – As we see it, this impacts almost all of our clients and the services that we provide and every home or business computer user that hires a third party to perform pretty much any service on their computers and networks! We have reached out to our tax accountant as well as the Mass DOR to get a more exact definition and will report any new information we receive.
I’ve personally called around to dozens of computer service providers both large and small throughout the South Shore and in every single instance, the Service providers are still operating under the “old” tax regulations and have not yet adopted these new requirements. It’s only a matter of time – when these companies start seeing the new online ST-9 sales tax reporting forms requiring that they separately report and pay their service tax liabilities – they will be playing and paying catch up with the Mass DOR.
I’ll be talking about this with Kevin Tocci, Monday night between 6:30 and 7:00 on Monday Night Talk on 95.9 WATD. I’ll also be discussing it with Rob Hakala and Lisa Azizian on my regular Tuesday morning spot on the South Shore’s Morning News Show at 8:11am, also on WATD. Tune in or you can listen LIVE on the website at 959watd.com.
Link to the new law as posted on MASS DOR website:
http://www.mass.gov/dor/businesses/help-and-resources/legal-library/tirs/tirs-by-years/2013-releases/tir-13-10.html
Article/post in The Boston Business Journal:
http://www.bizjournals.com/boston/blog/techflash/2013/08/the-new-sales-tax-on-computer-and.html
If you want to be even more confused about this law, have a look at this site:
http://repealtheitservicetax.com/
