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Illinois Considers Taxing Custom Software

timothy posted more than 10 years ago | from the starring-nobuko-miyamoto dept.

Software 369

Foobar_Zen writes "Illinois Governor Rod Blagojevich is proposing to tax custom software; he is hoping to generate $64 million. You can read the story at burrwolff.com. I am wondering if there any other states that currently tax for custom software? How is this going to affect Illinois? What does this do to independent application and software developers?" And what about software that adds value but itself is available without charge?

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Software tax? (0)

Anonymous Coward | more than 10 years ago | (#9125278)

Pshaw. im more concerned about the watercraft tax....

The free/Free software (4, Funny)

deego (587575) | more than 10 years ago | (#9125285)

I guess 10% of 0 is still 0 ;-)

In Soviet Russia (-1, Funny)

Hogwash McFly (678207) | more than 10 years ago | (#9125329)

Custom software taxes YOU!

Re:In Soviet Russia (-1, Offtopic)

Mr Guy (547690) | more than 10 years ago | (#9125338)

You are taxing to me. Does that count?

Re:The free/Free software (5, Insightful)

jellomizer (103300) | more than 10 years ago | (#9125393)

Well the trick is to find a Programmer who will do all this custom software development for free? Custom Software development usually always paid. Because with "Free" Custom Software development, first you will need to find a programmer willing to do it for free, which will be hard because a lot of custom software development is usually quite boring and the programmer will not get much credit outside the company that is using it. But say you did find someone to develop it for you for free the next trick is keeping them motivated to get it done,"its free so they can take as long as they want its not hurting them any", plus if the person is doing it for free then they probably have a paying job or are in school, the slim possibility of being independently wealthy. But in most cases the job will be worked on part time at best. So by the time the application gets done it will be a long time. and probably a lot of loss productivity.

Also most Custom Software doesn't bother with any sort of licensing basically as the programmer makes the code and sends it to the customer and they pay him for his hours the code is their they can do whatever they want with it.

Re:The free/Free software (4, Insightful)

Tim C (15259) | more than 10 years ago | (#9125444)

Also most Custom Software doesn't bother with any sort of licensing

That's because it's the very definition of a work for hire - the programmer is hired specifically to create that work on behalf of their employer. At the end of it, I think everyone would expect to own what they had paid to be created.

Re:The free/Free software (5, Informative)

Ctrl-Z (28806) | more than 10 years ago | (#9125492)

It is not uncommon for companies to sell custom software but retain intellectual property rights to that software. Chances are that if one client requires a solution, then there are others out there with the same needs.

Re:The free/Free software (5, Informative)

cygnusx (193092) | more than 10 years ago | (#9125448)

Also most Custom Software doesn't bother with any sort of licensing basically as the programmer makes the code and sends it to the customer and they pay him for his hours the code is their they can do whatever they want with it.

In quite a few countries "service tax" (or "value added tax") is charged on this sort of transaction. Both are a flat rate tax on the billed transaction. It doesn't really matter if the software you use is libre/gratis, as long as your bill amount is nonzero.

Re:The free/Free software (4, Informative)

Afty0r (263037) | more than 10 years ago | (#9125460)

Also most Custom Software doesn't bother with any sort of licensing basically as the programmer makes the code and sends it to the customer and they pay him for his hours the code is their they can do whatever they want with it.

I don't know if that is the case in the US, but that's definitely wrong in the UK. If a company pays a contractor/freelancer to write some code, the contractor/freelancer still OWNS the code in question UNLESS an agreement is signed transferring ownership of the work. - This catches many companies out.

Re:The free/Free software (1)

Luguber123 (203502) | more than 10 years ago | (#9125471)

I hope you are not supposed to pay for the benefit. I mean, just one linux installation is priceless. Tho if one could deduct the effort of installing one, I think I would compile Gentoo on my 386 with a smile.

Yeah right. (5, Insightful)

Willeh (768540) | more than 10 years ago | (#9125287)

I doubt this could ever go through, since the definition of 'custom software' is too vague. Would this tax me if i installed a copy of ms office with custom options? What about 3rd party plugins (paid for by me, or free)? What about rolling my own linux kernel? Or even making my own distro. And as for little programmer shops that would ultimately feel the heat, does this mean that when they package up their software and put it up on a shelf it's no longer "Custom software"? Bad idea, bad definition, bad enforceability, bad tax revenue idea.

Re:Yeah right. (0)

Anonymous Coward | more than 10 years ago | (#9125292)

how about RTFA?

Re:Yeah right. (2, Insightful)

kahei (466208) | more than 10 years ago | (#9125344)


Plenty of ambiguity -- good news for lawyers, bad news for business. Presumably they intend to figure out some long and complex definition of 'custom software' at a later date.

Re:Yeah right. (4, Interesting)

Roger Keith Barrett (712843) | more than 10 years ago | (#9125412)

I did RTFA, and I still agree that "custom software" is too vague and might be an undefinable concept.

The problem here, once again, is that the creation of software is being defined as a corporate-only or business-only activity.

Since government can't usually see beyond their corporate buddies. This could screw up all types of non-srinkwrapped software, not just OSS but freeware and shareware as well.

Re:Yeah right. (0)

Anonymous Coward | more than 10 years ago | (#9125488)

MS-Basic for Altair.. Custom
MS-Basic for MS dos.. not custom
MS-Basic for Amiga... Custom

See the diffrence? Oh wait!

Re:Yeah right. (3, Interesting)

cbr2702 (750255) | more than 10 years ago | (#9125456)

I think part of the idea is that currently custom software is both defined and exempt from tax (unlike prepackaged retail software) and one possibility here is that they would eliminate the distinction and take their 6.25%.

Its hard to watch (1)

Orgazmus (761208) | more than 10 years ago | (#9125288)

If this is going to affect the commersial use of opensource, this migth be a very bad thing.

S/W development will just move from Illinois (3, Insightful)

Anonymous Coward | more than 10 years ago | (#9125289)

Not too hard to figure out - pay $10 million for a custom system in Chicago, or pay $9.5 million for the same system in Gary, Indiana.

Re:S/W development will just move from Illinois (3, Insightful)

vasqzr (619165) | more than 10 years ago | (#9125477)


Or $1,000,000 from Bangalore

What exactly does "custom" mean... (2, Interesting)

Black Rabbit (236299) | more than 10 years ago | (#9125290)

...and who gets to define it?

Re:What exactly does "custom" mean... (4, Insightful)

larien (5608) | more than 10 years ago | (#9125319)

Who will define it? The lawmakers and their sponsors. Once the law is in place, lawyers and judges will have their pop at anything which isn't 100% crystal clear.

Re:What exactly does "custom" mean... (-1, Offtopic)

Anonymous Coward | more than 10 years ago | (#9125321)

RTFA

Mod down, something that can easily be answered by reading the FIRST FUCKING PARAGRAPH should not be modded up.

Re:What exactly does "custom" mean... (4, Interesting)

JJ (29711) | more than 10 years ago | (#9125335)

...and who gets to define it?

The 'custom software' loophole has been around for years. For basics, any software which required substantial modification or creation was seen as good for programmer's jobs and as an extra expense to business, so it was given this loophole.

In short, Gov. Blag*&%$ is raising the cost of employing programmers in Illinois and making outsourcing much more profitable. Hope you didn't vote for the idiot.

Re:What exactly does "custom" mean... (3, Insightful)

Anonymous Coward | more than 10 years ago | (#9125348)

What exactly does "software" mean and who gets to define it? If I send someone an 8 line javascript as an email attachment how much is the tax on that? How about taxing other forms of written communication; emails, webboards and snailmail letters. Why stop there, you could tax vocal communication too with discounts for non words and gurgling noises. I thought patents were an unofficial tax on software anyway?

Freedumb of speech is here, tax the planet.

this one is easy (2, Interesting)

dhuv (241988) | more than 10 years ago | (#9125293)

Just sell a license for a lifetime. You can just sell them licenses each time you charge for changes.

How about custom duty on software from India? (1, Interesting)

d2k297 (642147) | more than 10 years ago | (#9125294)

I think the fed should levy custom duty on software from India

Re:How about custom duty on software from India? (4, Interesting)

WIAKywbfatw (307557) | more than 10 years ago | (#9125450)

And this would be called free trade? Just like the free trade in steel, lumber, etc that the US repects?

Even setting aside the hypocrisy of preaching free trade then not practicing it, your custom duty may be impractical: you're forgetting that a great deal of software code written in India is written by programmers employed by American companies, so how you'd levy a custom duty on, say, a product that was coded by Indian employees of a company based in California would be interesting.

Re:How about custom duty on software from India? (1)

tiger99 (725715) | more than 10 years ago | (#9125494)

Well, it is quite OK to levy import duty on imports, that is what it is for after all, but it is not fair to discriminate against India. If it applies to one, it must apply to all. Meanwhile, Europe and the rest of the world will apply the same level of duty to imports from the US. (I certainly hope they do, they will mainly hurt the Convicted Monopolist.)

However, duty is traditionally charged as a percentage of the cost of the item, now to what does that give considerable advantage, I wonder......

So although I am against stupid taxation, I am all for this one. Or, they could of course simply impose a punitive tax on every company with wealth above a certain threshold, that would be even fairer to the general public and the world at large.

But the guy behind this clearly has the same sort of mental problem as Darl or Dubya, he is only going to hurt his own state. Maybe there are few software developers in that part of the world, but there must be lots of end users who really need custom software. If he had even half a brain, he would see that the one to tax is in another state, on the west coast, if he went a stage further and banned their vile, bug-infested, insecure products in the state, then he might actually achieve positive benefit.

Value, but no charge? (2, Informative)

peterdaly (123554) | more than 10 years ago | (#9125295)

And what about software that adds value but itself is available without charge?

I would think this has to be executed as a sales tax, where the tax is applied to the billed amount on the invoice. Value but no charge would be next to impossible to implement and audit.

-Pete

"custom"? (-1, Redundant)

ncurses (764489) | more than 10 years ago | (#9125298)

I don't understand, what is "custom" software? Software that you write or modify yourself or software used by customs?

Re:"custom"? (1)

baelbouga (762673) | more than 10 years ago | (#9125430)

I think that's what the problem with this idea is. If Company A hires Company B or Contractor B to write a custom piece of software for them, it would be exactly the same as if I had a person from Company A do it. In otherwords, I am not 'buying' software from anyone. I am 'hiring' a knowledge resource only. The software was never purchased.

The third bullet in the article (1, Funny)

Killjoy_NL (719667) | more than 10 years ago | (#9125300)

3. Tax private non-retail sales of watercraft

What's watercraft? Like witchcraft, but wetter?

Re:The third bullet in the article (3, Funny)

AllUsernamesAreGone (688381) | more than 10 years ago | (#9125326)

Mhhh... watercraft float on water, witches float on water. Therefore watercraft must be witches!

Can we burn them?

Re:The third bullet in the article (1, Funny)

martingunnarsson (590268) | more than 10 years ago | (#9125406)

Sir Bedevere: No, no. What else floats in water? Peasant 1: Bread. Peasant 2: Apples. Peasant 3: Very small rocks. Peasant 1: Cider. Peasant 2: Gravy. Peasant 3: Cherries. Peasant 1: Mud. Peasant 2: Churches. Peasant 3: Lead! Lead! King Arthur: A Duck. Sir Bedevere: ...Exactly. So, logically... Peasant 1: If she weighed the same as a duck... she's made of wood. Sir Bedevere: And therefore... Peasant 2: ...A witch!

Re:The third bullet in the article (2, Funny)

skasingularity (777400) | more than 10 years ago | (#9125346)

It's blizzards latest game where Orcs and Humans battle it out over the high seas... ...I heard its going to be bundled with Doom 3 this summer.

Re:The third bullet in the article (1)

Dachannien (617929) | more than 10 years ago | (#9125366)

Watercraft. [ncdcr.gov]

Re:The third bullet in the article (2, Insightful)

southpolesammy (150094) | more than 10 years ago | (#9125410)

Actually, there's a serious implication here that could set a bad precedent. In essence, Blagojevich is considering double taxation, where in this case, the original sale of the product is taxed and then if the product is resold, it's taxed again.

This is not a good thing if this resolution passes due to the cascade effect this may have on other "resellable" items.

Re:The third bullet in the article (1)

vondo (303621) | more than 10 years ago | (#9125436)

The bad precedent (if you consider it one) is already set. When you buy a used car, even from a private party, you have to pay the sales tax (usually when you license the car).

Talk of "double taxation" is bogus; all money is taxed many, many times as it makes its way around the economy. Tax policy should be about "fair," not buzzwords. In my opinion, if you have the disposable income to buy a boat, used or not, you should pay tax.

Oh joy (5, Insightful)

JosKarith (757063) | more than 10 years ago | (#9125301)

Yay! Just what the world needs, more archane, archaic taxation systems that mean that you have to employ people just so you can be sure that the government is taking the right amount of money from you.
And if you pay too much - forget it, you'll never see that money again. If you pay too little, they'll take you to court and add huge fines.
You can't win, you can't break even, and you can't even quit the damn game.

Re:Oh joy (1)

mmaddox (155681) | more than 10 years ago | (#9125313)

Thank you, Jos. You took the words right outta my mouth.

Re:Oh joy (2, Insightful)

Lumpy (12016) | more than 10 years ago | (#9125388)

no it simply will start to erode the Chicago Tech and business areanas..

Businesses espically BIG businesses have no problem uprooting and and relocating to save money. Illinois is just trying to figure out how to get rid of those pesky businesses that pleague their cities.

This is a proposal drafted by someone that has no clue.

Re:Oh joy (1)

Rytr23 (704409) | more than 10 years ago | (#9125399)

Yes, the tax system sucks etc etc.. I think we can all agree on that..however, it seems to me that quite a few people are indeed winning or at least breaking even, judging from the amount of money being spent on arguably frivolous items (ie >50K cars, >500K houses etc...) If thats losing, sign me up!

Re:Oh joy (-1)

Anonymous Coward | more than 10 years ago | (#9125478)

That guy has more money than me, waaaahhhh, that's not fair.

Re:Oh joy (2, Informative)

cperciva (102828) | more than 10 years ago | (#9125403)

Yay! Just what the world needs, more archane, archaic taxation systems...

I think you're missing the point. This change simplifies the tax system: Instead of having a special tax exemption for "custom software", there is one sales tax which applies to all software.

This isn't adding a special tax; this is removing a special tax exemption.

Re:Oh joy (0)

Anonymous Coward | more than 10 years ago | (#9125480)

> ...and you can't even quit the damn game.

You can by leaving the state.

Tax (1)

zz99 (742545) | more than 10 years ago | (#9125302)

And what about software that adds value but itself is available without charge?

Well, 6.25% of 0 is... 0

(For those too lazy to read the article, the new tax is on "software licensed or leased by the developer", currently not taxed)

Huh? (1)

Black_Logic (79637) | more than 10 years ago | (#9125304)

The governor estimates a business tax increase of $64 million by eliminating the distinction between canned software sold at retail (subject to sales tax), custom software (subject to service occupation tax on the value of tangible personal property transferred with the software) and software licensed or leased by the developer (currently not taxed).

Could anyone more knowledgeable about law explain the implications of this?

Hrmm (1)

acehole (174372) | more than 10 years ago | (#9125305)

Would the governor pay tax for software he buys?

Re:Hrmm.... (0)

Anonymous Coward | more than 10 years ago | (#9125349)

Would the governor pay tax for software he buys?

I'm not sure about the governor, but I'm sure his staff would [theinquirer.net] .

Article text (4, Insightful)

SmackCrackandPot (641205) | more than 10 years ago | (#9125308)

The relevant section reads:

1. Initiate sales tax on custom software: The governor estimates a business tax increase of $64 million by eliminating the distinction between canned software sold at retail (subject to sales tax), custom software (subject to service occupation tax on the value of tangible personal property transferred with the software) and software licensed or leased by the developer (currently not taxed). The Governor's proposal would either repeal the Department of Revenue regulation that distinguishes between a sale and a license of software or create an entirely new tax on revenues from software licensing.

If I were a company director, the first reaction would be to see if open source software exists to do the same job, and if it were cheaper to hire/contract to write inhouse software. Looks like this would hurt contractors/small companies than anything else.

Re:Article text (2, Informative)

Katharine (303681) | more than 10 years ago | (#9125457)

Here is what the budget itself says (444 page document found at http://www.state.il.us/budget/FY05%20Budget%20Book .pdf): [state.il.us]

(page 20)
Business Sales tax loopholes that will be closed focus on large businesses and luxury watercraft.
Sales taxes will increase $98 million as a result of these adjustments. The following are the sales tax changes:
Limit the farm chemicals tax exemption to include only small farms - $27.0 million
Collect sales tax on software packages (currently paid by consumers but not by business) - $64.0 million
Eliminate luxury watercraft use tax loophole - $7.0 million

(page 406)
Sales Tax Loophole Closings
. . . .
Collect sales tax on canned software - $64.0 million
Close the loophole that allows a business to purchase multiple copies of a computer program without being subject to sales tax on the licensing fee, while an individual who purchases a single copy of the software is taxed on the software purchase.

Stupid is as stupid does (2, Insightful)

SavedLinuXgeeK (769306) | more than 10 years ago | (#9125309)

The matter of the fact is, is that if this causes too many problems, people will just leave the state, or stop producing software. Then when the Govenor realizes that his tax is not working, or that he is causing a brain drain effect, he will wisen up. Taxing something as amorphous as custom software is a great folly, and honestly, people will not stand for it.

Yeah, right... free software... haha (0, Troll)

Anonymous Coward | more than 10 years ago | (#9125310)

Good April fools joke slashdot! Free Software indeed. There is no such thing...every store I've walked into sells stuff for money. I don't see anything free. Next, you're going to tell me that there are people distributing the source to their software openly! LOL.

Welcome India (2, Troll)

spooje (582773) | more than 10 years ago | (#9125311)

I just wonder how big the check from the Indian government was. There's no better way to kill any possible IT revival in this country than to tax it to death. Way to go Illinois!

Headline a little misleading (1)

31415926535897 (702314) | more than 10 years ago | (#9125312)

The governor estimates a business tax increase of $64 million by eliminating the distinction between canned software sold at retail (subject to sales tax), custom software (subject to service occupation tax on the value of tangible personal property transferred with the software) and software licensed or leased by the developer (currently not taxed).

The story made it sound like there was going to be a new tax on all software created and not sold in a retail store. However, reading the article carefully, it sounds like the tax is only going to be levied on software that is sold with software (hence, "customized" to the hardware). As noted above, software licensed or leased by the developer will not be taxed, and I believe that most software developed falls under this distinction.

Of course, I am not a lawyer, but it would hurt my business here if there were extra special taxes applied to my software (and the consumer, of course). I guess I will have to find a lawyer to explain this to me more clearly.

Re:Headline a little misleading (-1, Redundant)

gl4ss (559668) | more than 10 years ago | (#9125352)

headline misleading? on slashdot????????

NEVER!!!!! ..except always.

Re:Headline a little misleading (1)

AllUsernamesAreGone (688381) | more than 10 years ago | (#9125369)

As noted above, software licensed or leased by the developer will not be taxed,

Software licensed or leased by the developer is currently not taxed, canned software and custom software are currently taxed under different mechanisms. If you read the rest of the article you'll see that

The Governor's proposal would either repeal the ... regulation that distinguishes between a sale and a license of software

ie: canned software and software licensed by the developer would be treated equally and therefore subject to sales tax.

or create an entirely new tax on revenues from software licensing.

ie: or he will just create a new tax specifically for software licensed or leased by the developer.

In either event, software licensed or leased by the developer will be taxed in some way.

Re:Headline a little misleading (1)

TykeClone (668449) | more than 10 years ago | (#9125459)

In either event, software licensed or leased by the developer will be taxed in some way.

It already is in the form of the state and federal income tax on the business or individual writing or distributing the software. Sales taxes are just "extra" taxes that the states impose because they can.

First Post (-1, Offtopic)

Anonymous Coward | more than 10 years ago | (#9125314)

FIRST POST!!!11!!!1

Re:First Post (-1)

Anonymous Coward | more than 10 years ago | (#9125416)

not even close you gutless AC

Not as bad as some proposals... taxing open-source (2, Interesting)

shoppa (464619) | more than 10 years ago | (#9125315)

Some proposals that have circulated in the US congress could have limited the flow of open source software across international borders and/or taxed the open-source software at some arbitrary value supposedly related to commercial packages. These proposals never got out of the press release stage, at least as far as I can see. And it was probably never worthwhile to worry about them, as very press-release level laws get any more than the most minimal attention. (OTOH RIAA press releases seem to be closely scrutinized here... and they aren't even a lawmaker or lawmaking body!)

At least the proposed Illinois tax only appears to only tax the cash that changes hands. But again, it's only at the press release level and there's no real wording that I've seen.

What's custom software? (0, Redundant)

holizz (737615) | more than 10 years ago | (#9125318)

The article isn't very clear.

Absolute nightmare... (1)

kahei (466208) | more than 10 years ago | (#9125325)


So, the software component of a service that I provide is taxed as if it were shrink-wrapped software, and everything else (business analysis, support, etc) is taxed as before. What an extraordinary extra burden on both service provider and customer. Just the mechanics of deciding what is 'custom software', what is integration work on off-the-shelf software, and what is enhancements to existing systems makes my head hurt already.

Is this some sort of stealth plan to wind down the Chicago financial center and move everything to NY or something? Sigh.

Good news for Chicago tax lawyers, though.

This just in... (1)

Anita Coney (648748) | more than 10 years ago | (#9125330)

Illinois loses all in-state software development. Thousands laid off as those jobs are sent overseas.

Consider other proposals first? (4, Interesting)

mrtrumbe (412155) | more than 10 years ago | (#9125333)

Yesterday, Blagojevich dismissed out of hand a casino proposal the mayor of Chicago had proposed, threatening to veto any legislation the mayor was able to get passed. He did so in part because it would "prevents us from making the hard decisions that are necessary to continue to reform the system here in Springfield and get our fiscal house in order." Basically the message was, no quick fix until the budget comes under control. Read more about it here [chicagotribune.com] ("free" registration required).

Now today, we get his quick fix plan to tax custom software! And I'm sure we'd all agree this is much better than a casino in Chicago, right? Right??

Bah! Me no like politicians.

Taft

I have HAD IT..... (0)

Anonymous Coward | more than 10 years ago | (#9125336)

As someone who has dabbled in and out of the IT business for almost 20 years (I'm also an attorney and CPA), I have an announcement: I'M LEAVING THE IT BUSINESS. You all can have it. I for one have had it with M$oft, their worms and viruses, SCO, their lawyers and boogeymen, and now all the government creeps who figure they can solve their own budget shortfalls on our backs. Good luck to the rest of you, and I hope you eventually get the professional respect you deserve. (Rotsa ruck....)

I have an idea. (1)

NoMoreNicksLeft (516230) | more than 10 years ago | (#9125341)

Why cna't human beings, particular the borderline variety known as politicians, get it in their head that just because [insert abstract concept here] exists, it is not a target for taxation. A much more fair and more logical system exists. That is, we decide what things need to be bought in common (military defense, roads, city water) and then we decide who it is that benefits from it the most. For defense, we'd all chip in, but that water main put in for the corporate headquarters that just moved in... well, they see 95% of the benefit for it, make them pay for the bulk of it. Tax whatever it is that they make. When they've mostly paid for that, repeal that tax... they should only be paying for their shares of roads/defense.

Politicians that wake up one morning with "Hey! If we tax air breathing, we can generate $9 trillion in revenue!!!" should be barred from public office.

Re:I have an idea. (0)

Anonymous Coward | more than 10 years ago | (#9125441)

Well, someone with little has less need for defense since someone is less apt to try and take it.

Which means that contribution for some common goods, such as defense, would to be fair be based proportunately on wealth, not income, and more importantly the US should demand tribute ala empires of old for its services as superpower. I imagine that there are few ideas less popular.

Tax the air we breathe? (0)

Anonymous Coward | more than 10 years ago | (#9125476)

Already been done and then repealed. In the early 80's the state of Rhode Island had a tax on "the efficiency of oil and natural gas burners". The tax was based on the rated efficiency of the burner when sold: the higher the efficiency, the lower the tax. Essentially, one recieved a tax break for consuming more air during combustion. The tax was ultimately regressive in nature and was repealed.

I'd be more worried about (1, Funny)

JTunny (653851) | more than 10 years ago | (#9125353)

3. Tax private non-retail sales of watercraft
More expensive yachts = increase in price of a CD

why not tax everything? (3, Insightful)

rel48 (756414) | more than 10 years ago | (#9125354)

Writing software is a service. So is legal work, plumbing, lawn mowing, ... If they're going to tax custom software, then _all_ services should be taxed.

Aren't they taxed? (1)

dark-br (473115) | more than 10 years ago | (#9125435)

At least here in Brazil they are.

There is a TAX called "ICMS" (Tax over circulation of services and merchandise) that you have to pay if you sell stuff or if you are contracted as a professional to do some job. You as a service provider must have a registration under the city hall so they can track your profits.

Re:why not tax everything? (1)

TykeClone (668449) | more than 10 years ago | (#9125484)

In Iowa, the governor proposed taxing services - at least all services except for those provided by lawyers - they are practicing a "constitutionally protected" service and shouldn't be taxed (and he is a lawyer).

I have no problem with goods being taxed. I don't think that food and clothing should be. I really don't think that services should be taxed.

Technology does not make a good tax stream (1)

ducomputergeek (595742) | more than 10 years ago | (#9125371)

If there is an existing service tax in the state, then I could see where custom programming is a service and subject to tax laws. However, if I am reading this correctly (good chance I am not its 7AM and only 1 cup of coffee so far) the idea is almost as stupid as the idea of collecting sales taxes for every county/city in the US.

Maybe they'll outsource the custom programming to Missouri or Indiana er... India.

Offtopic, but on the case of collecting sales taxes online, how is a online business different than a mail order/catalog store? Why not use existing laws to collect state sales tax sold on goods to customers in your state? Is it really that hard to figure out?

Tax software licensing? (1)

hkroger (666340) | more than 10 years ago | (#9125375)

Well, okay. Why not? If they want to tax all kind of software "sales" then go for it. According to the article, currently it's not possible to tax software licensing. I think this means that if you create your own software you want to license to other companies for some bucks then the state cannot get anything from your sales. And they just want to change this and get their share of it. Why should it be above other sales activities?

I'm pretty sure that this doesn't affect if you just give away your software for free. So, no worries, pals.

We already charge sales tax on custom software (1)

christooley (215314) | more than 10 years ago | (#9125377)

We already charge sales tax on the consulting services that are the development of custom software. Since we're not selling them "software" we're selling them a service they don't get invoiced for the software. The service is already charged sales tax.

On the other hand, 10% can easily be hidden in the price of the product. Any good product worth it's price is worth it's price at 10% higher.

tax? why? (1, Interesting)

Anonymous Coward | more than 10 years ago | (#9125381)

Interesting to notice that most posters are talking semantics. Have you ever considered that it is basically an illegal action to simply tax something because the government runs out of budget? Who are they anyway to tax this randomly? I think this is a more important question than simply looking at the exact definition of the word 'custom'.

So currently no software is taxed? (0)

Anonymous Coward | more than 10 years ago | (#9125387)

From the article:
"...and software licensed or leased by the developer (currently not taxed)"

As almost all software is "licenses" rather than sold, does this mean software in IL is effectively tax free at the moment?

I can see why they want to change it...

Bye bye Illinois software industry (2, Interesting)

AtariAmarok (451306) | more than 10 years ago | (#9125389)

These people forget that if you tax an activity, it serves to discourage the activity. What this does is discourage software programming in Illinois.

Easy way out... (2, Interesting)

alispguru (72689) | more than 10 years ago | (#9125402)

The software is free, and copyrighted, and useless without a dongle.

The dongle costs $$$. The only "custom" software in it is the authentication key, and if they're going to tax that, they'll have to tax RFID chips too.

Any other problems?

Re:Easy way out... (0)

Anonymous Coward | more than 10 years ago | (#9125474)

uh... first this is a stupid, obvious way to circumvent the proposed law and the taxation authority would laud you for your 'cleverness' and then slap a big fat tax on your ass anyway.

Second, I presume you are going to sell the dongle for some incredible sum of money to recoup your otherwise lost development fees, and that would be hit with a plain 'ol sales tax just like any other physical good sold.

Any other bright ideas Mr. Fastow?

Re:Easy way out... (1)

Thanatopsis (29786) | more than 10 years ago | (#9125493)

The dongle would be taxed using sales tax as it is a material object. So the full price would be taxed by the relevant jurisdiction's sales tax. That's not an easy way out at all. It is certain to create a tax problem.

So the service tax begins (4, Insightful)

thogard (43403) | more than 10 years ago | (#9125417)

Most countries that have a sales tax also have a tax on services. In Europe its called VAT and in Oz/NZ its called General Sales Tax (GST). If they start this, I expect it won't be long before every service is taxed just like current sales tax which sort of makes sense in a service economey. Of course the better solution would be get better value for our tax money.

Offtopic - /. new posting alerts (0, Offtopic)

Frank of Earth (126705) | more than 10 years ago | (#9125419)

Are there any services that will email you when a new /. article is posted?

Tech Support (2, Interesting)

bigattichouse (527527) | more than 10 years ago | (#9125420)

Well I will just have to give them the software for free, but charge them a monthly fee for potential support calls. I'll probably get a much better revenue stream that way.

corporate-only activity? (1)

Roger Keith Barrett (712843) | more than 10 years ago | (#9125422)

Why does the governmet insist on defining software creation as a corporate-only activity?

should I put on my tinfoil hat now?

Ohio already taxes custom software (0)

Anonymous Coward | more than 10 years ago | (#9125426)

Not only that, Ohio taxes services as well. If you get a flat tire, you not only have to pay sales tax on the tire but you also have to pay sales tax on the labor it takes to install the tire.

Our company is in Cleveland Ohio and we get hammered with an 8% sales tax on everything we code.

The fact that the majority of our coders ssh in from out of state doesn't seem to matter, Ohio still wants their cut. As a direct consequence our company is moving to Austin Texas next year.

I don't write custom software. (1)

jellomizer (103300) | more than 10 years ago | (#9125431)

I don't write custom software. I write commercial software that is so specialized that I only have one customer who buys it. It is not my fault that nobody else wants an application that opens the XBS Database and runs some queries on it. If they are out there they should call in and I can sell them the software. But I don't have the funds to advertise it so I only have one customer. But being a good business I listen to what my customers have to say about the product and in future releases I add features that the customers have requested at a nominal upgrade fee.

This is ridiculous... (1, Insightful)

gillbates (106458) | more than 10 years ago | (#9125432)

As both a resident of Illinois and a freelance developer, this doesn't look good. While my paying clients might not like having to fork over another 5 - 10% above their quoted price, this could absolutely destroy free software.

Here's the dangerous part:

(subject to service occupation tax on the value of tangible personal property transferred with the software) [emphasis mine]

The law is written so that the tax is applied to the value of software transferred - IOW, installing Linux on a client's computer could cost the customer $250 - 500 regardless of how much you actually paid for it. Should the Illinois Government use the Microsoft pricing model ($5000 for a server OS...), a developer who volunteers to help out a client by installing Linux on their server could end up owing the state $250 to $500 in sales taxes.

The biggest threat I see to this is the destruction of free software. Since the tax is charged on the value, rather than the price charged, even giving away custom software would impose a tax liability on the author.

And believe me, there are a lot of programmers in Illinois that will remember this when the elections come up. With the economic downturn, quite a few of us have had to resort to picking up side jobs for extra income - the last thing we need is a tax which would take away our business.

Isn't All Software... (1)

Cytlid (95255) | more than 10 years ago | (#9125437)

... "custom software". You know, it's software someone customized. As opposed to, say, the software created by God that you go out and pick off a tree.

Someone has to pay for all the war/miltary (-1)

Anonymous Coward | more than 10 years ago | (#9125438)


and now its Illinois's turn

Where are the dollar figures coming from? (1)

southpolesammy (150094) | more than 10 years ago | (#9125443)

The one thing that jumps out at me is that Blagojevich and his staff have already determined that the custom software tax will net the state $64M in taxes, but my question is what goods will this tax pool come from? The definition is extremely vague, yet there is a hard number being discussed.

So either Blagojevich pulled this $64M number out of his ass and is wildly guessing, making him a bad politician (oh no! gasp!), or he's already defined the source of the new taxes and the proposal is too vague, meaning that more information about this needs to be made public.

They need another tax? (1)

TheLoneCabbage (323135) | more than 10 years ago | (#9125452)

Let's get this straight. I do custom programming work for a customer. I pay Sales Tax, Corporate Income Tax, and Sales Tax. And even though they are tools/ingrediants for resale, I also pay takes on codec libraries, compilers, and computers.

Now, as if it's some soft of sin tax (luxury items, copanies that polute, cigarettes) they want to tax us again because ... why?

Greed (0)

Anonymous Coward | more than 10 years ago | (#9125463)

"... why?"

Greed.

Microsoft will make sure this doesn't happen (3, Interesting)

gozar (39392) | more than 10 years ago | (#9125453)

Read the section:
The governor estimates a business tax increase of $64 million by eliminating the distinction between canned software sold at retail (subject to sales tax), custom software (subject to service occupation tax on the value of tangible personal property transferred with the software) and software licensed or leased by the developer (currently not taxed).

The relevant section is that software licensed or leased by the developer will now be taxed. Since Microsoft essentially leases their software under the Software Assurance plan, that means there will now be an extra tax burden on companies using Microsoft products. Microsoft will make sure that doesn't happen, because that will just be one more reason to switch to an OSS solution.

Internet (1)

Decameron81 (628548) | more than 10 years ago | (#9125455)

What are the implications of this law mixed with the internet? Would I have to pay a tax to Illinois when people from Illinois buy my programs?

If I do have to pay taxes based on where people buys from, isn't that an incentive to discriminate customers because of where they live?

Diego Rey

I wish we could tax stupidity on /. (0)

HogynCymraeg (624823) | more than 10 years ago | (#9125470)

CowboyNeal would be rich! :)

Why single out software? (0)

Anonymous Coward | more than 10 years ago | (#9125479)

Why wouldn't they just impose a tax on ALL license fees and services? There is such a tax where I live and work.

Double taxation (1)

isorox (205688) | more than 10 years ago | (#9125491)

I dont get it. When you employ someone, you pay taxes, they pay taxes. The development has already been taxed.
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