Researcher Paul J. Mathison explains governor’s proposal to tax computer professionals

We couldn’t quite believe it when Paul J. Mathison, founder of research firm pjmathison, told us that the Governor was planning to begin taxing computer service professionals for their work.
We understood the reasoning; the budget shortfall statewide, like here in Philadelphia, has called for drastic measures. But what surprised us most was that we hadn’t heard a thing about it.
Included in the Governor’s fiscal year 2011 budget is a proposal to drop the state sales tax from 6 to 4 percent while broadening the tax base to include other professionals currently exempt. Like computer service professionals.
And while we’ve seen coverage of the issue, after the fact, in Pittsburgh, and according to Mathison, a growing interest from technology stakeholders across the state, little has been done here in Philadelphia.
After the jump, we ask Mathison for the details on the proposed tax hike and what technology groups can do to fight it.

Could you tell us the proposed changes in the upcoming governor’s budget and how they will effect computer service professionals?
Included in the Governor’s budget proposal for the fiscal year 2011, which begins this coming July 1st, there is a proposal to reduce the state sales tax rate from 6 to 4 percent and extend the reach to include other goods and services currently not taxable under state sales tax.
The administration has listed 74 different classifications of goods and services that currently aren’t taxed and arguably could and should be, among those are professional services, like computer services.
There’s a little history behind the proposed changes that are a reminder of more than a decade ago, right?
This was previously done and tried, way back in 1992. There was an expected hole in the budget. The strategy there was to extend the sales tax to include all types of professional services and other items. I don’t think there was a combined plan to reduce the rates, but the goal was ‘we can tax more items and make up for this budget deficit.’
What was the reaction from the those professionals then?
The natural players ran to the governor’s office and said ‘don’t impose this tax on us.’ CPAs got exempted. Also lawyers and other groups got themselves exempted. As I recall it, only four groups got wacked with this tax. I remember three. Landscapers, who didn’t have an advocacy voice. Another was computer service professionals who at the time in the nascient stage of that industry were not galvanized together. A third was government lobbyists – they didn’t have their act organized. It’s no coincidence that right after this happened, [lobbyists] galvanized together and formed a trade association.
Then what happened?
In 1997, under [Governor Tom Ridge], when times got better, in the beginning or middle of dot com boom, it was perceived that they were squelching an industry and making Pennsylvania unattractive as a place to locate businesses. That tax was lifted.
How exactly would broadening the tax base to include computer professionals help the shortfall?
The state estimates that at least $300 million is forgone in state revenue by not subjecting computer services, custom programming, design and data processing services. That doesn’t necessarily mean that 300 million or more would be generated, because it would depend how exactly computer services are defined in any legislation.
What defines “computer services, custom programming, design and data processing services?”
You can probably appreciate that those definitions change from day to day. Do information systems consulting, business process, and media related [vocations] fit that definition? You can certainly debate about the final definition of what computer services are, but it’s perfectly posible that a bill would be crafted and enacted based on national SIC codes, and other codes IRS uses.
How are groups around the state reacting to the possible decision?
The Pittsburgh Tech Council has done a pretty good job of having public policy advocacy on their list of what their organization does. Likewise, CEO Kelly Lewis of the Technology Council of Central Pennsylvania, is rallying his members, doing a good job of articulating the many issues, this being one they would not like to see happen. They’re busy.
And here in the Southeast? We haven’t heard much movement around the issue.
I would submit that an opportunity exists for us in Southeast part of state to try to speak with one voice on this issue and coordinate with these other tech groups around the state to make more of a unified presence and message in Harrisburg.
Any recommendations for how someone would help get this done?
Do your homework and get the facts. Second thing is a communications strategy, figuring out who target audiences are, including the governor’s office as well as the legislative branch. Include folks in House and Senate appropriattion committees and probably one or both of technology related committees in legislature. Craft and communicate the right message to these folks. We’re always interested and happy to council, advise and contribute what wisdom I can.