The leaders of the House and Senate said on Thursday they plan to repeal the software design tax they approved just months ago and fill the resulting $161 million revenue hole with surplus tax revenue left over from last year. Their announcement follows on the heels of Gov. Deval Patrick’s decision earlier this week to beat a hasty retreat from the tax, which he originally proposed in January.
The press conference in House Speaker Robert DeLeo’s office was notable less for the budget implications ($161 million is less than 1 percent of the $34 billion state budget) than for the political and symbolic ramifications. Democratic leaders are essentially acknowledging they screwed up by passing the tax and are rushing to repeal it over the next couple weeks before the issue mushrooms into a dragon that Republican gubernatorial candidate Charlie Baker and the GOP can try to slay during the 2014 election year.
DeLeo, Senate President Therese Murray, and their budget officials insisted the two branches conducted proper due diligence on the tax, scaling back its size significantly from the governor’s initial proposal and in the process winning the support of business groups. But the legislative leaders said that after the tax became law members of the tech community raised concerns about both the substance and symbolism of the measure.
“It is now evident that the impact of this sales tax is broader than we intended or anticipated,” Murray said.
DeLeo said tech industry officials expressed concern “that we were sending a message to innovators across the country that Massachusetts may not be the place to be.” He said repeal of the tax will send the message that “Massachusetts still is the place to be.” DeLeo noted Florida Gov. Rick Scott had sent letters to many Massachusetts businesses inviting them to come to Florida to avoid the new tax.
DeLeo said any budget holes created by repealing the software design tax would be filled with existing surplus revenue, not new taxes. “We’re replacing it with revenue, just not new revenue,” DeLeo said.
Officials from the Massachusetts Competitive Partnership, the Greater Boston Chamber of Commerce, and Associated Industries of Massachusetts joined lawmakers at the press conference and praised them for moving for repeal. Dan O’Connell, president of the Competitive Partnership, which is made up of CEOs of many of the top companies in Massachusetts, said business groups also failed to grasp the impact of the software design tax.
“We did not see how negative the impacts would be,” O’Connell said. “Yeah, we made some mistakes.”
Baker applauded lawmakers for listening to the tech community and moving to repeal the software tax. “Repealing this is the right thing to do,” he said.
The last time the Legislature passed a tax increase and then repealed it fairly quickly was when William Weld was running for governor. Weld campaigned against a tax on services passed by the Legislature and, after he was elected, succeeded in getting it repealed.
Asked if the Legislature’s repeal of the software design tax will deprive his campaign of an important issue, Baker said he didn’t want to view the repeal through a political lens. He said repealing the software design tax was important for the state’s economy and business climate. He did say, however, that a Republican governor on Beacon Hill would provide a good check on the Democratic Legislature and vice versa.
