centresource interactive agency

Looks like ill-conceived software property tax is a no-go. Here's the NTC update, courtesy of Jeff Constantine:

[From Jeff Constantine, President of NTC on 01/23/06]

There was good news and a reminder of a difficult truth during this morning’s hearing before the State Board of Equalization on a proposal to make application software uniformly taxable as personal property.

On the one hand, soon after the hearing convened, Thomas Fleming, a member of the staff of the Office of the Comptroller of the Treasury, advised nearly 70 executives assembled for the hearing on software and other issues that the State Board of Equalization had resolved that it “not ready to go forward” with its software-tax proposal.

Instead, the Board’s staff will do more homework, including reviewing briefs submitted by attorneys and other parties today, studying assessment practices in Tennessee jurisdictions and in other states, and perhaps searching for estimates of the economic impact of taxing applications software as personal property.

So, for the moment, the basis for your tax bill will remain unchanged.

However, the comments of executives who rose to speak against the proposed tax change made vividly clear how vulnerable Tennessee businesses are to competition from other states and from other nations.

Several speakers stressed that if the State sought to tax all applications software as personal property, some businesses would feel forced by cost pressures to move whole companies or computer operations to other states, or to other nations.

Wayne Sharber, vice president, Tennessee Chamber of Commerce & Industry, told the Board that the state Chamber believes the tax proposal would cost Tennessee businesses in excess of $100 million, annually.

Charlie Trost, who serves as counsel to an ad hoc coalition of businesses (including HCA, IP, and others) that is addressing this matter, announced he has filed a brief with the Board on these issues. Stressing the gravity of these issues, Trost warned that the software proposal would likely result in the erosion of the tax base, with Tennessee potentially losing both hardware and software employment and investment. In addition, local attorney Paul Krivacka, explaining he represents a Nashville healthcare company in a software-tax related matter, argued that the proposal was imprudent and would place Tennessee at a disadvantage to most other states.

I found particularly compelling remarks by Jim Marks, who stressed he was speaking as a concerned citizen, and identifying himself as an executive with NMG Advisers, (an NTC Member company). In addition to his argument that the rapid obsolescence of software makes it more a cost of doing business than an “investment,” he noted the complexity of the issue, offering as examples questions about how inhouse software might be treated, versus outsourced programming costs, such as Tennessee businesses employing ASP software and services from outside Tennessee.

In the face of such complexities and in consideration of U.S. competitiveness, several speakers urged that the tax proposal not be merely studied further, but withdrawn.

In addition, legal briefs and comments filed today address a number of issues, perhaps most important among them fundamental questions regarding whether the State Board of Equalization may promulgate a rule regarding tangible personal property, or whether that would represent an unconstitutional circumventing of the General Assembly, where a business coalition of software consumers says such taxation authority exclusively resides.

We will continue to follow these issues, very closely, and will report to you, as warranted. Meanwhile, this issue serves to highlight how pervasive technology issues have become. We’ll be giving further thought to this, as I’m sure you will. Please share your thoughts with me, at any time. Please write me here.

Sincerely,

Jeff Costantine
President