Tech Tax

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By Phil Yacuboski

With Pennsylvania’s growing tech sector reaching new heights every year, Harrisburg is looking at taxing the industry with a so-called ‘tech tax.’

“I don’t believe it’s in the best interest to tax a growing economy,” said Chuck Russell, an IT consultant and senior partner with Collective Intelligence Inc. Russell is also the president and CEO of the Technology Council of Central Pennsylvania. “There’s a big hole in the state budget,” he added

Gov. Tom Wolf is proposing a computer services tax, which would abolish sales and use tax exemptions on computer services firms in Pennsylvania. The tax rate would be six percent.

He said the tech tax looks to raise about $350 million, which could put a dent in the $3 billion budget deficit.

“If you increase the cost of a service by six percent, then people will consume six percent less and that means less profit for the companies to provide those services,” he said. “It would ultimately be a net drain on hiring and eventually affect tax receipts and revenue.”

Russell said while consumers are taxed on things like software, you’re not taxed on information technology services.

“So if I provide disaster recovery services or cybersecurity, I don’t charge my clients sales tax,” he said. “The tech tax calls for a tax on data center services, consultants and in cybersecurity, it includes engineering services. It’s a pretty broad set of codes.”

Tech groups across the state have voiced their displeasure.

“If adopted, this tax will impact nearly every business in the Commonwealth,” said Amanda Nardi, spokeswoman for the Philadelphia Alliance for Capital and Technologies.

The Pittsburgh Technology Council warns taxpayers of the computer services tax passed in 1991 that was eventually repealed.

“Jobs and common sense are really a short answer of why this won’t work,” said Brian Kennedy, a spokesperson for the Pittsburgh Technology Council. He said if passed, the tax in Allegheny County would be 7 percent.

“On purchases in the millions, that becomes highly noticeable,” he said.

Other states have a similar experience with the tech tax. Lawmakers in Oklahoma are considering a tax to close an $820 million budget gap. Kennedy also said Massachusetts tried a similar 6.25 percent tax in 2013 and hoped to raise $500 million annually. After tech businesses threatened to leave the state, lawmakers eventually repealed the measure before voters ever had their say. It was a similar story in Maryland.

Hawaii and South Dakota have a tech tax. In Connecticut, the tax is at 1 percent.

Russell said he’s met with Gov. Wolf’s staff and legislators in both the House and Senate, and he said their position is that everyone should pay their fair share.

“My take is we shouldn’t be taxing the growth economy, we should be incentivizing it,” he said. “All of the companies who provide services that will ultimately move to another state where they won’t be taxed. It’s very easy to move to New Jersey, eastern Ohio, New York or Maryland where those services are not taxed.”

Russell noted that all of this is ‘talk’ and there is no specific proposal yet — nothing is in writing and it’s unclear if the tax percentage could be negotiable.

“We won’t be the ones stopping it,” said Kennedy. “I think anyone looking at the issue understands that this won’t work. The trend is actually to repeal a tax like this, not to pass one.”

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