Sometimes I jump to the wrong conclusions. A few weeks ago, when the MSPAlliance said there was a potentially “urgent” tax issue facing Florida managed services providers, I dismissed the report because sometimes I think the alliance cries wolf. But to the MSPAlliance’s credit, there’s now a healthy, growing discussion around MSP taxation in certain states. Here’s the update.
First, my faux pas. On January 21, the MSPAlliance told its members there was an urgent issue involving a potential “push by the Florida Department of Revenue to collect taxes in a way that would unfairly punish MSPs in that state.” Initially, I erroneously didn’t think much of the report. From alleged accreditation controversies to thinly veiled attacks on our own MSPmentor 100, sometimes I dismiss what the MSPAlliance has to say.
The Issue At Hand
This time around, I’m starting to listen more closely to the MSPAlliance as it educates MSPs about a potential tax issue involving a handful of U.S. states. I don’t want to press any panic buttons because there aren’t any landmark rulings to note.
But this paragraph from ChannelWeb, quoting MSPAlliance President Charles Weaver, sums up the alleged situation pretty well:
Traditionally, the law stipulates that there is no tax on services rendered by professionals such as doctors and lawyers. But in the case of MSPs, the state of Florida is considering whether they are providing any products with the services, and if so, the whole thing may be subject to tax, Weaver said.
In the story, Weaver alleges that similar issues have popped up in Connecticut and Ohio. Update, 10:59 p.m. eastern, Feb. 4: I just heard from a New York MSP who claims to be facing the same issue. I’m following up for more details.
Calling for Calm
Time for MSPs to worry? Again, let’s not press the panic button.
I spoke with two MSPs in Florida earlier this evening. And I also traded email with Arnie Bellini, CEO of ConnectWise, which is located in Tampa. All three sources share similar perspectives: They aren’t pressing the panic button. Instead, each is taking a “wait and see approach” because interpretations can vary from one tax auditor to the next.
Again, the early reports only involve a handful of MSPs. But if state governments start chasing MSPs for more tax dollars, the industry is going to need an association to rally around. The MSPAlliance deserves credit for stepping up to the plate on this matter.
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Tags: Charles Weaver | Florida Managed Services Providers | Managed Services Taxes | MSP Taxes | MSPAlliance
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TN taxes this way. It’s unfortunate, but it’s how they have done it for years. I am affected by the FL ruling too as I’m with an MSP out of FL. It’s significant if it changes and does create more issues for the MSP to deal with in closing deals – it’s at least a 6% penalty to the customer.
Hi Paul: Thanks for offering up additional insights.
For readers who want more info about the Florida situation, the MSPAlliance offered up two ways to contact the association: info@mspalliance.com or 530-891-1340
-jp
I have to wonder if this stems from several tactics I’ve seen MSPs take when selling “services”. I’ve encountered a handful of MSPs that bundle both the hardware (PC, server, handhelds as HaaS) and services as a single monthly charge. Rightfully, this is a good move for customers looking for both equipment and services (often, as startups) for a monthly fee.
Example – MSP Customer A buys a 10 user package that includes PCs, hosted email services, a firewall, and all-you-can-eat IT Managed Services Plan. How is that MSP breaking out their monthly charge to Customer A? As one line item for “services”? Or, do they break it out for hardware vs. services? What is hardware vs. services in this case? Is that interpretation left up to the MSP?
I think that’s probably where this is all going. There’s no clear line in the sand to these states on what is taxable – and they’re rightfully investigating.
This has been the law in Texas for years, and we charge sales tax on our services. Admittedly, the law is somewhat ambiguous, and we’ve had more than one client question the correctness of it. I know that we lost at least one prospective customer over it. The frustrating thing is that it puts us at a competitive disadvantage against those that don’t charge sales tax.
Jim Lancaster
Sagiss, LLC
Dallas, TX
John, Jim: Thanks for your added thoughts. The MSPAlliance posted another “urgent” message to readers today.
I’m most interested to see what these means for the HaaS industry… I’ll be poking around some more.
-jp