Meanwhile, on Beacon Hill there are new taxes in a complicated mix of bills: the governor’s $1.9 billion proposal that leans heavily on a major increase in the income tax, so far rejected by the Legislature, which has its own House and Senate versions with gas and tobacco tax hikes. All versions have a new sales tax on computer services. There’s also a transportation bond bill and the House budget, both of which assume passage of the legislative tax package, which is presently in a conference committee to resolve any differences.
Meanwhile, the Senate is working on its own version of the budget, and the governor is still arguing for his higher, broader taxes. I am just trying to understand how this sales tax on computer services would work.
One small-businessman told me: “During the current depression, I’ve already had to discount my normal rates in order to get work. Accordingly, if I invoice my customer for $10,000, I’d have to pay the state $625. In other words, the sales tax will act as a 31.25% income surtax on my $2,000 profit. This would be devastating…
“It is even worse. As I understand the legislation as passed by the House and Senate, if I subcontract a portion of the project to another consultant, I would have to pay a double sales tax on the amount of the subcontract. For example, suppose the consultant invoices me for $5,000. As I read the legislation, I would have to pay the state an additional $313 in sales tax on that $5,000 invoice from the subcontractor, which would bring the effective income surtax on this hypothetical project to almost 47 percent.”
The taxpayer offered his conclusion: “If this legislation becomes law, I will no longer be able to work as a computer consultant in this state.” He said he guessed he could apply for MassHealth, EBT, fuel assistance, housing subsidy, etc.