The newly enacted Massachusetts "tech tax" — a 6.25 percent sales tax on computer and software technology services — prompted the Business and Industry Association to issue an alert to its membership Tuesday.
"We want to make sure New Hampshire businesses are aware of this new tax and acknowledge that it could possibly impact where they choose to do business and from whom they choose to purchase goods and services," BIA President Jim Roche said in a statement.
Businesses with a physical presence in Massachusetts that are providing Bay State customers with services covered by the tax may be subject to the new tax. A "physical presence" could mean nothing more than a single sales representative with a home office in Massachusetts, according to the BIA's reading of the law.
The tech tax — one of two new Bay State taxes that affect certain New Hampshire businesses — creates the potential to add business costs for local industries that rely heavily on purchases of customized technology and software services from Bay State vendors. It has been called the "most onerous computer and software services tax in the nation" by the Massachusetts Taxpayers Foundation.
Last week, the Mass High Tech Council added its name to a petition effort to repeal the tax by placing a question on the November state election ballot.
"If something similar were enacted here, we would be doing exactly the same thing in terms of taking action against it," said Matt Cookson, executive director of the New Hampshire High Tech Council.
The state sales tax on software services implemented last month in Massachusetts is the highest tax on computer services in the country, according to a study by the Massachusetts Taxpayers Foundation.
While New Mexico, Hawaii and South Dakota also have taxable computer services, none is as high as the 6.25 percent sales tax in Massachusetts. New Mexico's is 5.125 percent, while both Hawaii's and South Dakota's are 4 percent.
Ryan Barton, president of Mainstay Technologies, a firm with offices in Laconia and Manchester that provides IT services to companies, said the tech tax is something firms such as his need to consider before doing business south of the state line.
"We do about 90 percent of our business in New Hampshire, but we are always thinking about ways to grow," Barton said. "That 6.25 percent sales tax eats into a profit margin that already isn't that large. It's enough to make you really stop and think about whether or not it makes more sense to expand into another state that's a little more business-friendly than Massachusetts."
The second tax law change, which takes effect Jan. 1, will mean some New Hampshire service businesses and professionals will pay a Massachusetts income tax for the first time, or see it increase if they already have a Massachusetts client base.
A New Hampshire business whose only office is in New Hampshire and that provides services to Massachusetts customers does not currently attribute its income to Massachusetts and may have never filed a Massachusetts income tax return. Such income was considered generated in New Hampshire.
The new rule ties that income to the state where the customer is located rather than where the business performed the work.
Companies that fall subject to the law will have to pay either the Massachusetts corporate income tax (currently at a rate of 8 percent) or personal income tax (currently at a rate of 5.25 percent ) in addition to the New Hampshire business profits tax and business enterprise tax.