Taxation

TechNet supports tax policies that promote innovation and foster an economic climate that enables companies to compete, thrive, invest, and expand in the United States and around the globe.

Due to many factors, the tax landscape at the state level is currently fluctuating at a rate not seen for decades.  Research and development tax credits are popular in some states and under siege in others.  Years of scarce budgets and underfunded infrastructure and public services are driving policymakers to consider new taxation schemes that will likely be counterproductive for long-term budgeting purposes.  Meanwhile, new policy priorities in clean energy technology are creating opportunities for smart tax incentives.

TechNet’s state program supports the following principles:

• Implementing research and development tax credits that spur growth in key technology sectors, including indefinite carry forward of research and development tax credits.
• Promoting decoupling of Section 174 required capitalization of research and development expenses allowing the continued or immediate expensing of such costs.
• Supporting legislation in the states to couple with IRC 168(k) Special Allowance for Certain Property (bonus depreciation).
• Supporting legislation to decouple current Section 163(j) interest expense deductibility limitations rules and replace with U.S. federal rules that existed for tax years beginning before 2022.
• Expanding access to existing tax credits for gig and sharing economy participants, particularly for products and services aiming to address real-life challenges such as accessibility, inclusion, congestion, and the electrification of transportation.
• Ensuring tax structures create a level-playing field for all product and service providers, both technology players as well as others, and do not disadvantage a specific subsector such as sharing economy companies and platforms where individuals can offer and pay for goods, services, or shared resources.
• Lowering corporate tax burdens and preventing attempts to raise corporate and payroll taxes in order to fund additional government services. Similarly preventing attempts by states to temporarily disallow deductions for prior tax losses (net operating lossess) or utilization of tax credits legislation. These proposals disproportionately affect early-stage businesses that are growing into profitability.
• Preventing attempts by states to tax pre-written computer software and cloud computing services or software as a service (SaaS).
• Preventing attempts by states to apply broadly defined data processing and information services taxation regimes to an expansive set of technology-based applications and processes.
• Engaging on nexus tax legislation that negatively impact member companies and small businesses that are seeking to comply post-South Dakota v. Wayfair, including but not limited to marketplace facilitator nexus, economic nexus, payment facilitator nexus, remote seller representative nexus, and legislation using Wayfair to justify platform collection of locally administered taxes.
• Supporting policies that promote startup businesses by not increasing taxes on entrepreneurial investment activities.
• Promoting and expanding investment tax credits and angel investor tax credits.
• Supporting tax policy that provides clean energy technologies with a stable tax environment that appropriately supports the industry’s unique financing needs.
• Finding an amenable and consistent way for states to tax or apply fees to the evolution of independent earning opportunities, which is rapidly growing and forcing policymakers to grapple with how to tax or apply fees to technologies that do not rely on brick-and-mortar presences in a state and are competing with traditional industries that already may be regulated and taxed.
• Ensuring any budget deficits at the state and city level are addressed with holistic strategies that do not disproportionately impact technology companies.
• Ensuring that any user fees are designed to provide digital platforms with flexibility on when and how the fee is assessed from the consumer in order to accommodate unique and innovative service models.
• Engaging against data excise taxes or the taxation of the collection of customer data.
• Engaging on digital tax legislation that discriminates against electronic commerce in violation of the federal Internet Tax Freedom Act.
• Engaging against retail delivery taxes or fees, which generally target online business models and harm delivery drivers, small businesses, and delivery-dependent households.
• Supporting language that excludes sales by affiliated entities on a common platform from the definition of marketplace and/or marketplace provider.
• Protecting user data by opposing government efforts to utilize platform users’ tax information for non-tax purposes.

Priority Issues

Exempting Cloud/SaaS Taxes

Many states consider cloud or Software as a Service (SaaS) purchases as an untapped source of revenue as hardware offerings become less prevalent.  The question centers on whether offering storage space in the cloud is a tangible “good” (subject to sales taxes), a “service” (subject to use taxes), or neither of those.  Different states are making different decisions and the situation is still evolving.  TechNet will continue to advocate for national consistency and will oppose state-by-state efforts to extend traditional sales taxes to SaaS and related technology services to the extent that the imposition of such taxes has a disproportionately negative impact on cloud providers.

Marketplace Facilitator Collection

As states seek to revise legislation passed in the wake of the Wayfair decision, the state program will advocate for marketplace facilitator sales tax collection legislation that preserves a diversity of marketplace business models, especially with regard to the relationship between the marketplace facilitator and its customers and sellers.  TechNet supports the principle that marketplace facilitators should be as free as possible – without creating a risk of under-collection of tax – to determine how to comply with marketplace facilitator collection requirements.  To that end, TechNet will oppose legislation that allows marketplace sellers to unilaterally opt-out of marketplace collection.  TechNet also supports the principle that sales are subject to tax only once.  In addition, the law should be easy for consumers and marketplaces to comply with and for states to administer.

TechNet will also oppose efforts to extend marketplace facilitator collection requirements to other taxes and fees unless such collection is centrally administered by the state, changes are made to make such taxes uniform, and the state along with the help of localities provides information regarding such taxes on which platforms can reasonably rely.  If a technology platform is deemed the retailer to collect taxes on a transaction, platforms should have the ability to collect and remit all such transactional taxes. 

Investment Tax Credits

Legislation related to tax credits, such as research and development, employment credits for job creation, angel investor, venture capital, and technology investment/development tax credits, can spur growth, incentivize economic activity, and help companies make decisions regarding where to expand their operations.  The current landscape for state-level tax credits is in flux.  Traditional credits are embraced in some states but discontinued or in jeopardy in others.  Increasingly, new tax credit proposals focus on the startup sector to ensure increased access to venture capital and angel investor dollars needed to succeed in a competitive market.  TechNet will continue to educate policymakers about the benefits of smart investment tax credits, work to protect and/or restore traditional, existing credits, and promote consideration of new kinds of credits aimed at expanding the benefits into the innovation economy.

Clean and Renewable Tax Incentives

Many companies have a vested interest in “going green,” and consumers expect technology companies to be leaders in this endeavor.  Furthermore, because of the global scope and nature of technology companies’ offerings, it is critical that they have a source of affordable, predictable, and reliable energy that will not be interrupted due to the myriad of political circumstances outside a company’s control.  Lower energy costs allow tech companies to use those savings on other areas of their businesses.  TechNet will promote the continuation and adoption of these incentives.

Oppose Digital Advertising Tax Legislation

As states grapple with how to tax the digital economy, we have recently seen proposals loosely modeled after the European Digital Services Tax policy that punitively target digital advertising.  Working with the larger business community, TechNet will strongly oppose attempts to tax digital advertising.  Advertising is merely a tool for generating sales and creating awareness of an issue, so it is unwise to impose taxes on these kind of business inputs and especially counterproductive in the current economic conditions where many small businesses that rely on digital advertising for messaging are struggling to survive.  Besides being unsound policy, state proposals to date have contained vague definitions on the activity subject to tax and on sourcing methodologies which will lead to confusion for taxpayer implementation.