Sadly, the Washington state House of Representatives is close to passing legislation to frivolously tax “custom software” (that’s us) and “customization of prewritten software”. We all agree that there are so many other things we’d all rather be reading and blogging about, but thank you for taking the time to read our view of our state government’s shortsighted attempt to alleviate Washington’s budget issues.
The WTIA has been lobbying hard to delete this provision since it came up last Monday. As a member of Washington’s high-tech community, we’d like to express our adamant opposition to the proposed Taxing Custom Software Programming Services. House Bill 3191, Part 15 (starts on page 90), proposes to apply sales tax (currently 6.5% in WA) to “custom software” and “customization of prewritten software”.
Here’s a potential example of the impact of House Bill 3191 on consumers and providers of “custom software” and “customization of prewritten software” in Washington:
WA-based Customer: Hello, my company needs a mobile app… and a fancy website, come to think of it. Can you help?
WA-based Developer: Hey, WA-based company! Yeah, we can help.
WA-based Customer: Great! When can we start and what’s it going to cost?
WA-based Developer: First, let’s set a meeting to better define your need. It’s a good thing both our companies are in Washington!
WA-based Customer: [awkward silence] Oh, you’re in Seattle. [more awkward silence] Does that mean I’m going to have to pay state sales tax for you to build my mobile app and website?
WA-based Developer: Yes, but…
WA-based Customer: AAAAHHH!!! [click]
WA-based Developer: Hello? [tear]
A bit dramatic? Perhaps. Though, in all seriousness, we are opposed to this provision for the following reasons, originally stated by the WTIA:
- Custom software has traditionally been considered a “professional service” similar to attorneys, engineers, management consultants and other similar professions. This provision is a major departure from that classification and is not a logical reclassification to a “retail service”.
- Requiring custom software companies to now charge their customers sales tax increases costs and taxes to all types of businesses, adding to an already heavy tax burden paid by Washington state businesses.
- Large customers of custom software companies will surely seek to lower programming costs by going to offshore providers, which could lead to job loss among custom software providers.
- Custom software providers may decide to locate themselves in a neighboring state or province thereby avoiding the burden of being a tax collector for the state and instead put the burden on the customer to pay use tax, which is less than for sales tax.
- The technology sector is ever-changing. Is a web design firm considered a “custom software” provider? Does any service done for a particular customer that uses software to produce that service fall under this provision? Confusion will reign, and the Dept. of Revenue and taxpayers will find themselves looped into endless discussions and arguments over tax liability.
- Unlike sellers of digital goods, custom software providers are not customarily set up to take payments from customers by credit card, do not have e-commerce systems and converting to a sales tax collection system will be burdensome and costly, resulting in frustration and less than expected revenue.
Thank you again for taking the time to read this important information. If you share our belief that this legislation would be damaging to the economy of the great state of Washington, then we and the WTIA humbly ask that you, please contact your state Representative and state Senator today to express your opposition to taxing custom software programming services. In addition, please pass the message on to the sponsors of this bill: Representative Hunter (hunter.ross@leg.wa.gov) and Speaker of the House Frank Chopp (chopp.frank@leg.wa.gov).
Here’s hoping that we Übies won’t have to move to Oregon!
- The Übermind Blog Team
Sadly, the Washington state House of Representatives is close to passing legislation that would apply the state sales tax (currently 6.5%) to professional “custom software” and “customization of prewritten software” services. This goes far beyond just us “geeks;” any company in Washington that uses software customization services (e.g. hires someone to design or tweak their website, their student record system, their electronic medical records, etc.) will now have to pay sales tax for those services.
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