How to lose our competitive edge

Desperate for revenue and panicked by Colorado’s budget crunch, our legislators are currently hearing a bill that will tax software companies, the services they provide, and the users of these products and services – and damage Colorado’s ability to cultivate the high-paying jobs that will define the future economy and our competitive position in the global marketplace.

Colorado has started cultivating a robust industry of professional service and software providers who came here for the beautiful mountain and business climates. Software and consulting are high-margin businesses fueled by creative, highly educated talent – they command high wages, which in turn supports government services through corresponding payroll taxes. And unlike legacy resource industries, Colorado’s tech companies aren’t tied to coal or gas under the ground. They can easily reincorporate elsewhere.

We’re a few votes away from banishing ourselves to the lower echelon of states that are known in the investment and entrepreneurial communities for having complex and burdensome software taxes. Given the current financial situation of states like California and Massachusetts (and the looming potential tax burdens that will be imposed on entrepreneurship there), this is actually an opportunity for Colorado to offer a friendly and competitive alternative to these historical magnets for innovation and job creation – which, by the way, would raise much more revenue for a significantly lower cost that HB 1192.

This poorly thought-out legislation crimps our prosperity by punishing makers and buyers. Software investments -from new copies of Word to the most complex enterprise-level systems-allow Colorado companies to increase competitiveness and subsequently increase hiring and drive up revenue. HB 1192 will disincentivize this critical investment. It will strike directly at critical sectors like bioscience, aerospace, financial services and renewable energy. As these related verticals, their clients, and their secondary vendors choose to work and travel in our state less and less, the shock waves will spread to our service economy.

The CSIA (Colorado Software and Internet Association) has led the charge to educate lawmakers about the pitfalls of the bill. A critical lesson: it’s a poor idea to impose a new tax burden on a complex, intellectual form of commerce that government is not equipped to regulate. (Financial industry meltdown ring a bell?)

In his excellent guest post on Foundry Group managing director Seth Levine’s blog, Marion Jenkins, CEO of IT consultant QSE Technologies, catalogs the mind-boggling array of software that you’ll find under the roof of just one Fortune 500 company (Colorado had 11 such companies as of 2009). In essence, Colorado would need a building full of new people (thereby institutionalizing more costs and therefore the need for additional higher taxes) just to figure out which and what kinds of software count against the provisions, and how to administer the taxes for each.

In a national economy that I would generously assess as “challenged,” I would hope that our friends in the Colorado legislature would take an interest in nurturing our economic bright spots, encouraging small businesses, and re-growing the economy instead of the government bureaucracy. We build our demand forecasting software to compete with the SAPs and Oracles of the world, and although we’re small, we’re hiring this year. Our competition gives us plenty to think about already; seeing this onerous blob edge onto the radar is highly dispiriting.

As has been widely noted in Colorado’s tech blogging community, the sponsors of this bill have chosen to skirt TABOR by isolating and mugging individual industries instead of having a hard conversation with voters about why taxes might need to be raised. Or having the even harder conversation: figuring out how make government become more efficient.

This game has real stakes, and the drama is unfolding as you read this. Will the Colorado Legislature take a strategic viewpoint and start building the platform for Colorado’s future prosperity, or will they take the uninformed, historically easy, tax-and-spend approach? If you realize the impact of losing our reputation for having a tech-friendly climate, you’d better not miss a play. This bill could become law as early as March 1.

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