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Massachusetts May Be Seriously Considering A Service Tax

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Speaking at a Greater Boston Chamber of Commerce breakfast event Wednesday morning, Senate President Stanley Rosenberg stated that Massachusetts should discuss imposing a tax on services. Rosenberg cited current tax revenues, which have fallen short of projections in recent years, as evidence that the state’s tax code isn’t bringing in sufficient revenue to keep pace with state spending – despite the state’s 3.4 percent unemployment rate and a decade-high business confidence level.

The issue may very well lie in the fact that there is no tax on services, despite the fact that Massachusetts’ economy is largely service-based.

Rosenberg isn’t the first to bring up a potential service tax. The Dukakis administration passed a state sales tax on business and professional services in late 1990, but it was repealed by the incoming Weld administration before it ever took effect. A similar attempt was made again in 2013 when the Legislature passed a law that subjected certain computer services to a sales tax, with that law quickly being repealed to appease angry business professionals.

Later in his speech, Rosenberg went on to say that he had been part of the committee that had authorized the largest tax cut in state history. However, property tax, sales tax, income tax, and corporate tax should still be looked at to try and overcome the cash shortage the state is facing.

While there is no current proposal to impose a service tax, that could change after the 2018 election. A proposed 4 percent surtax on incomes exceeding $1 million is expected to go to voters at that time, as well as a potential cut to the current sales tax.

Frustrated retailers are upset by the rising number of tax-free online transactions, and said last month that a reduction in sales tax from the current 6.25 percent is something they’re considering launching a ballot campaign for in 2018. Rosenberg cautioned that this tax cut would cancel out the gains made by the income surtax. It’s unlikely this proposed cut would see much support, as it would further undermine the state’s financial situation.

As a state service tax is still nothing more than a hypothetical at the moment, there is no way of knowing when or how such a tax could be put into effect, or what the rate might be. The potential benefits to the state warrant at least some consideration, but if past attempts are any indication of things to come, business owners will not let any such tax law be passed without voicing their objections.

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