Massachusetts two weeks ago repealed a 6.25% sales tax on computer and data processing services that was part of a $500 million tax package lawmakers passed in June.
The latest move created a $160 million budget hole, mostly for state transportation funding. Lawmakers are in no hurry to seal the gap.
"There will not be another tax coming through this body, in this session," said Senate President Therese Murray, D-Plymouth.
Gov. Deval Patrick signed the repeal measure Sept. 27, saying, in retrospect, the state erred.
But the controversy still lingers. Critics accuse Massachusetts of rushing the legislation and singling out one industry as a revenue stream. Bay State tech officials only awakened after passage of the bill and worried about a law so vague that it could have enabled the state to rake in as much as $500 million.
Complaints by tech leaders that the tax would put Massachusetts at a competitive disadvantage — they lobbied fiercely for repeal over the summer through social media and other means — prompted Florida Gov. Rick Scott to write an open letter to Bay State business leaders, inviting them to buy a one-way ticket to the Sun Belt.
Scott's moves, which have also included open letters to other highly taxed states, paralleled Texas Gov. Rick Perry's television ads earlier this year throughout New York State.
"Florida's economic formula is working. While Florida's unemployment rate has seen the second-largest drop in the country, Massachusetts' June unemployment rate increased to the highest since June 2011," Scott wrote on Aug. 6. "While Florida ranks fifth in the nation for our business tax climate. Massachusetts is stuck at No. 22, according to the Tax Foundation. It's bound to get worse in Massachusetts, as just last week we saw them raise taxes on gasoline and even computer services."
Anthony Figliola, vice president of Empire Government Strategies and former deputy supervisor of Brookhaven, N.Y., questioned why Massachusetts would go after one of its most productive industries.
"It's not right to single out an industry," he said.
"The state is talking out of both sides of its mouth," Figliola said. "They'll have a groundbreaking with XYZ Tech touting the arrival of 100 jobs and $40 million of investment and then they'll say, 'We'll tax you to high heaven.'
"What they're really saying is 'Why don't you go to New York?' If Patrick keeps this up, you might see Rick Perry's ads on Massachusetts TV."
Jim Stergios, the executive director of the Boston free-market oriented Pioneer Institute think tank, sees an alarming trend in public finance.
"At a time when states feel constant fiscal pressure, they throw spaghetti against a wall and hope some kind of revenue enhancement sticks," said Stergios. "The tech sector needs to be aware and ahead on these issues. The Massachusetts Technology Leadership Council has been around since the 1980s. They pack a punch, but here they were asleep at the wheel for three or four months."
On the left side of the debate, the Massachusetts Budget and Policy Center warns about underfunding transportation. MassBudget also argues that the tech-tax repeal leaves the tobacco and gasoline taxes the major remaining elements of the tax plan.
"These taxes are good for public health and for the environment, but they are also taxes that generally require lower income people to pay a larger share of their income than higher income people," MassBudget said in a report.
In its own policy paper, MassBudget's options included adjusting or eliminating special business tax breaks, reducing opportunities for tax avoidance and re-examining other major tax cuts of the past two decades.
But the Pioneer Institute says with reforms, new revenue may not be needed to cover the $160 million hole, mostly earmarked for the Massachusetts Bay Transportation Authority — known commonly as the "T," the essential but money-bleeding transit system for Greater Boston.
Pioneer research director Greg Sullivan and senior fellow Charles Chieppo recommend exempting the MBTA from the state's anti-privatization law known as the Pacheco Law. Backed by the state's Supreme Judicial Court, Pacheco requires managers to "overcome virtually insurmountable obstacles," as Pioneer described it, before subcontracting any service state employees now deliver.
According to Pioneer, MBTA procurement director Claudia Russell last December told the board of directors of the T's parent, the Massachusetts Department of Transportation, that it would cost the authority 50% more to perform a major bus overhaul at its own facilities than to outsource its own work.
Sullivan and Chieppo also said Massachusetts could deregulate taxi and livery services as New York City Mayor Michael Bloomberg did last year. In addition, Sullivan and Chieppo say the MBTA could institute electronic transit fare proof-of-payment smart cards on commuter rail trains, similar to what San Francisco has done with its Clipper Card system. They say such a move would lower salary and benefit costs.
