If you didn’t already know, I live in Seattle. There’s a bill that’s currently in the Washington State Legislature that, if passed, will levy a tax on all software customizations done by businesses (at least, for now, those businesses residing in the state of Washington).
You may not think this impacts you directly, but if other states (or governments in other countries) see it as a viable option, they may consider doing the same thing where you live.
Check out the legislature’s proposed HB 3191. Page 90, Part XV, Point 2, as put forth by Representatives Hunter, Conway, and Hasegawa:
In order to preserve funding for higher education, it is the legislature’s intent to use revenue generated from assessing a sales and use tax on custom software to support the state’s institutions of higher education and financial aid programs including the state need grant.
What the hell does THAT mean? Well, if you’re a business in the state of Washington, you’ll be subject to a state sales tax (currently 6.5%) on any “custom software” or customization thereof.
As Übermind points out, there are two likely scenarios:
- Scenario 1. If [a Washington company] hires an in-state consultant or consulting company, the in-state consultant or consulting company will have to collect the sales tax and pay it to the state.
- Scenario 2. If [a Washington company] hires an out-of-state consultant, they will have to pay use tax (paid in lieu of sales tax) on their next tax bill. Again, ANY company in Washington will suddenly have to pay at least 6.5% more for these services.
I spoke with Ken Myer, President and CEO of the WTIA, to find out more about this bill – and why it’s probably not the smartest thing for small businesses here. The Washington Technology Industry Association has been fighting hard against this change.
According to Ken, approximately 2,000 Washington companies that do custom work on software will be directly impacted by this bill if it is passed. Yes, that would include the giants such as Microsoft. However, it’s also going to hit the small startup down the street… and hit it hard.
In order for small businesses to set themselves up to charge sales tax for their services and goods, they will have to raise their prices by 8% or more, just to continue breaking even. Therefore, the tax isn’t only impacting the business owners… it also just impacted YOU, the potential consumer.
As Ken says, this is the first time that a professional service is being turned into a product (and being taxed as such). As we discussed this point, a regular user in my live chat room couldn’t help but ask how a government could possibly tax something that isn’t technically “tangible,” which is a good point. A physical disc is tangible, yes. However, the services provided by businesses who are doing custom code work are not truly something tangible. Where do we draw the line here?
Pardon me, but I thought marijuana was outlawed? How else could Representatives Hunter, Conway, and Hasegawa come up with such an asinine idea? More politics behind the bill are outlined by Todd over at TechFlash.
Why sock it to small business owners who are struggling enough in a challenging economy?
It’s getting to the point where owning a small business in the state of Washington is no longer viable. There are very few incentives for me to stay here (as an operating business entity). I love the weather, I love the people, but these f*ckwits in the House have got to go.
There’s not a state in the Union that’s truly friendly to small business owners anymore.
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