August 29, 2013
STATE LAWMAKERS were right this week to repeal the so-called “tech tax” just two months after it was adopted as part of a transportation finance package. The controversial 6.25 percent sales tax on a range of software services, such as building Web pages and computer consulting, was too broadly defined and never belonged in a transportation bill in the first place. As the highest of its kind in the nation, the tax also threatened to put one of Massachusetts’ fastest-growing economic sectors, its technology firms, at a serious competitive disadvantage. The Legislature was wise in its willingness to revisit the measure and correct it before any tax monies were collected.
But how best to replace the lost revenues from the repealed tax? In the short term, that money won’t be missed — it was not expected to hit the Transportation Department’s coffers until 2017. Also, because of the upcoming 2014 elections, there is little chance any new taxes will be passed until after a new governor takes office. Proposals like that from state Senator James Eldridge to instead raise the tax rates on dividends and other investment earnings are likewise politically unviable.
Nonetheless, in an era of increasingly tight state budgets, the loss of an estimated $160 million can’t be dismissed altogether. Legislators should pay attention to the recommendations of the tax fairness commission created by the repeal bill, especially if they further the goal of Governor Patrick’s original budget to make the tax code more progressive. Low- and middle-income households in Massachusetts today pay a larger share of their income in taxes than do higher-income people. The tech tax wasn’t the way to fix this disparity, but hopefully its repeal can yield to better solutions.