Brian Cardarella, principal of Boston web and mobile software development firm DockYard, will soon have to charge his customers more. That’s because the Massachusetts state legislature recently passed a 6.25 percent sales tax levy on computer services, forcing firms like his to tack the new sales tax on to almost every service they provide.
Cardarella told Boston Magazine that the new tax will likely upset his customers, who will now face higher bills. It will also put his firm at a competitive disadvantage against software developers in other states who collect little or no sales tax on such services. “We are going to pass this on [to customers] as every other business does,” he told Boston. “If we were to absorb it, it would kill our profit margin and would leave very little incentive for us to run the business in the first place.”
As state and local governments look to close budget shortfalls or raise revenues, many have enacted—or are considering enacting—new sales and excise taxes that often target specific types of purchases or industries. In recent years, governments have passed so-called “consumption taxes” on everything from landscaping to tanning salons. Earlier this year, the City Club of Portland (Oregon) recommended the city enact a 4-percent excise tax on new bicycle purchases, riling many bike shop owners and manufacturers in the biker-friendly city.
"There are so many hurdles in being cost-competitive in a market that is dominated by foreign manufacturers coming in," Phillip Ross, owner of Portland-based cargo bike builder Metrofiets, told BikePortland.org. "At the end of the day, it's still way cheaper to just get your bikes from China.”
While consumers who only occasionally purchase these newly taxed items may not feel much pain, they often put stress on local businesses that must, in effect, raise their prices. Not only can new sales tax rules present an accounting headache to small and mid-sized businesses, they also risk that customers will spend less due to the new taxes. Many economists believe taxing consumption, rather than taxing income, compels people to work and save money, rather than spend. They can feel especially penalizing to businesses when a local or state government passes a sales tax, giving a competitive advantage to online businesses or those in other cities and states.
“When we impose a tax that no other state in the country imposes as broadly as this, it is going to have an impact on those small and midsize companies, initially, in terms of their ability to win and retain business or add or retain employees,” Christopher R. Anderson, president of the Massachusetts High Technology Council, said in an interview with Boston’s WBZ-TV. “There are hundreds of small businesses calling every week saying that this is going to negatively impact them,” he added.