Tax Legislation: Governor Patrick Vetoes Transportation Bill   Leave a comment

The Massachusetts House of Representatives passed a new software tax as part of the transportation finance bill, H. 3535. On July 17, 2013, the House passed an amendment to negate all the changes proposed by Governor Deval Patrick, who is seeking additional tax increases. The Massachusetts Senate also passed H. 3535 without making any changes, according to an email message from Martine Powers, a reporter with the Boston Globe. The bill proposes to pay for state transportation projects by increasing several taxes.

The bill proceeded to Governor Patrick, who vetoed it on Friday, July 19, 2013. The legislature may override the governor’s veto. They will vote on a possible override this week, i.e. by July 26, 2013.


Massachusetts General Laws, c. 64H s. 2 provides as follows: “[A tax] is hereby imposed upon sales at retail in the commonwealth, by any vendor, of tangible personal property or of services performed in the commonwealth at the rate of 6.25 per cent of the gross receipts of the vendor…”

What are “services?” The statute defines “services” in Massachusetts General Laws, c. 64H s. 1. Section 49 of the bill (H. 3535) amends the statute so that the word “services” will include “computer system design services.” Section 48 of the bill amends the statute, c. 64H s. 1, to add the following definition:

“Computer system design services,” the planning, consulting or designing of computer systems that integrate computer hardware, software or communication technologies and are provided by a vendor or a third party.

It follows that “computer system design services” will be subject to a 6.25% sales tax if the bill becomes law.

The “computer system design services” are sometimes called “cloud computing.”


Michael Farrell reported for the Boston Globe that the technology sector did not lobby strongly against the taxation of software services when the bill was first proposed in June, and it may now be too late to change the bill. The bill has bipartisan support on Beacon Hill. Governor Patrick opposes the House version of the bill on other grounds, but he supports the taxation of software services.

The Worcester Telegram opposed the tax in a staff editorial titled “Doesn’t Compute.” That newspaper argued on July 8, 2013 that “we don’t need a new tax burden on the state’s most productive industries, including the life sciences, health care and finance.”

The Massachusetts Taxpayer Foundation also opposed the tax in a press release dated June 26, 2013. The press release argues that the tax “strikes at the heart of the Massachusetts economy, costing countless jobs for years to come.” The chart in the press release shows that computer services are subject to a full sales tax in only three other states: New Mexico, Hawaii, and South Dakota.

TechAmerica, the leading U.S. technology trade association, also opposed the new tax in a press release and a letter to the Massachusetts legislature. Kevin Callahan wrote in the letter, “The proposed tax on computer system design services included in the transportation financing package…punishes businesses – particularly the technology sector.”

We do not express an opinion for or against the proposed new tax.


The State House News Service reported that legislators may clarify the definition of computer services in the proposed new tax:

“Senate Ways and Means Chairman Stephen Brewer also said legislative leaders intend to make their intent clear to the Department of Revenue to make sure the software sales tax provisions aren’t too broadly interpreted, and stand ready to clarify the law if necessary in the future.”
We anticipate that the Massachusetts Department of Revenue will issue regulations and guidance on the scope of the new tax. We await the likely passage of the bill and the guidance and regulations from the Department of Revenue.


Michael Farrell, Tax plan’s sting felt too late by tech sector. The Boston Globe, July 18, 2013.

Elena Malykhina, Massachusetts Computer Services Tax Riles IT Industry. July 19, 2013.

Michael Norton, Matt Murphy and Andy Metzger. “Tax Bill Delivered Back to Patrick with Veto-Proof Support.” State House News Service, July 18, 2013.

Martine Powers, Mass. House brushes aside amendment proposed by Gov. Patrick to transportation funding bill. The Boston Globe, July 17, 2013.

Martine Powers, “Patrick vetoes transport bill; lawmakers could override.” The Boston Globe, Saturday, July 20, 2013, page B1.

The Associated Press, “Mass. Lawmakers to consider transportation veto.” The Miami Herald, July 22, 2013.

We thank Mr. Farrell and Ms. Powers, both reporters from the Boston Globe, for answering our questions by email and for providing sources used in this blog post.


Posted July 22, 2013 by Mass Tax Lawyers in Uncategorized

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