Posts Tagged Finance

I’m of the mind that taxes pretty much stink.  I’m sure many agree.  In cartoons and movies alike, the “Tax Collector” is always portrayed as a seedy individual who only cares for himself, his job and the state.  But the other side of the coin is quite simple: Taxes pay for much needed services within a society.

Now that the United States is witnessing its worst recession since the Great Depression, budget shortfalls are numbering into the billions of dollars (ugh…and trillions).  Each state – with the exception of only a few – is in the red.  For example, Colorado’s education system has been greatly affected and can no longer receive cuts to its budgets.  To make up for this and other state budget shortfalls, more changes are needed to fill the gap.  Over 2010, the state will see massive tax hikes and the elimination of tax credits – for businesses and citizens alike.

But, when does the tax legislation begin to infringe on a society’s progress?  When do those taxes begin to alter the competitive landscape for business?  The Colorado government’s latest tax scheme – HB 1192 or “Software Tax” – is an example of a tax that just plain stinks; it’s bad legislation, plain and simple.

The way HB 1192 is setup is not in the best interests of Colorado’s citizens, purely because it directly affects business.  It’s also being fast-tracked through legislation – already passing the first major hurdles and on its way to full-blown approval.  If it does pass, it will take effect March 1.

(Maybe it has already passed and nobody has been notified.  Uh-oh.)

So, what’s all the fuss about?

How this will affect companies in Colorado is still uncertain.  However, one can ascertain that the use of software by businesses will be a primary target – imposing additional expense to the cost of doing business in the state.

Think of how much software a business uses on a daily, weekly and annual basis.  Of course, large businesses use hundreds of different software applications.  Small businesses are certainly not out of the picture either.  The use of technology in Colorado and the proliferation of technology will be negatively impacted.  It isn’t just a simple tax: It’s a slow bleeding of the state’s intellectual resources.

According to Su Hawk of the Colorado Technology Association (CTA), the software tax “is the most dangerous bill our organization has seen in its 16-year history because it is extraordinarily confusing, complex and costly for technology companies and technology users throughout all companies in our state.”

Interestingly enough, this new software tax will have a ripple effect – stretching from businesses to citizens, and state visitors as well.  First, the legislation is very confusing and massive at the same time.  This mixture usually creates more confusion and apathy among the state’s elected officials who have the power to deny passage of the changes.  Their understanding of HB 1192’s power isn’t entirely understood.  Why?  HB 1192 isn’t the only turd being passed through the doors of the state government.  There’s only so much state officials can review and fully understand.  They’re only shown the dollars signs and the bottom line, which only affects the short-term situation.  The long-term implications are an entirely different story (probably more depressing than I care to trudge through at this point).

None of this bodes well for those who are against the “Software Tax.”  Here’s how the CTA views the problem and what it will do:

• All software that was designed for one user but then resold to a second user would become taxable
• If a company develops software and then sells its business to a third party, they then would be selling “taxable software” when the business is sold
• Taxable software includes all prewritten updates/upgrades.  If these charges are not separately stated from a maintenance fee, the full charge for maintenance and update becomes taxable.
• Charges to customize “base software” could be taxable if not separately stated from the overall purchase of the software.  (Thus, businesses will need to be very careful about how they invoice customers, otherwise labor will become taxable.)
• In general, all services not separately stated from the license of software could become taxable (installation, customization, maintenance . . . )
• Where software is located or how the software is transferred to a user does not change the taxability of software.  As a result, the sales tax would then apply to all ASP and SaaS models or any other form of “cloud computing.”
• The language could apply to many transactions, which include a software component.  For example, online banking software provided to bank customers as part of their overall fees for banking services may become taxable.  Any other fees for services where a customer has access to utilize some form of software may become taxable if the charge for services and software are not carefully segregated.
• Many more…

Further down the rabbit’s hole…

Would these taxes and tax credit eliminations be necessary if the government would restrain its wasteful spending and implementing of unnecessary programs?  Of course, we’re talking about the state of Colorado, but this affects the likelihood of tax programs for the nation.  Taxes are necessary.  When do they become unnecessary?  Simple.  Taxes become a problem when they enforce a burden on economic growth and forward progress.  That’s counterproductive to our current state of affairs, not ideal.

Some helpful links:

http://bit.ly/asgDyT

http://bit.ly/9bDor6

http://bit.ly/d9Eu9g

http://bit.ly/cE4T2d

Your thoughts?