In an economy where tech is one of the few bright spots, unfathomably, Texas is pursuing policies to drive hundreds of thousands of high tech professionals out of state.
Anyone who does anything web related is being targeted. Unsuspecting web designers, applications developers, marketers and consultants are being slapped with huge tax fraud assessments. Even those who are able to survive these draconian death penalties will find themselves struggling to compete on an increasingly uneven playing field. Stripped of the tax protection afforded to all other educated professionals, those with expertise in software engineering or marketing will face a destructive ripple effect.
It will start with companies pushing to source from out of state and off shore. Alternatively, big companies will get around the tax by bringing these professional services in house. The taxes will translate into incentives driving up the cost of talent. To retain critical experts and remain profitable, vendors will have to raise fees 3 to 4 times the tax rate – and that is just the first iteration. Small to midsized businesses will be hit hardest, unfairly burdened with paying a high premium for local resources or incurring the inefficiencies of working with remote vendors.
Inevitably, many high tech and web consultants will realize the tax burden and the higher cost of talent have priced them out of market. To continue in their chosen career path they will be forced to seek out more conducive marketplaces - which is anywhere that is not Texas. That’s where the exodus starts.
As the talent pool begins to shrink, even big companies will struggle to find the resources they need to innovate. Small businesses will be effectively cut off from vital local resources they need to keep pace. Business innovation will stagnate. The business exodus will start with the tech startups. Unable to find resources and surrounded by an infertile environment, these agile organizations simply will move to where the brains are. Again, anywhere that is not Texas.
The impact on larger businesses will be slower and more subtle. It will at first happen silently. It will be the companies that don’t move to Texas. Like those that fueled Texas’ gloried tech boom of the 90’s. They will be the ones that stop coming.
Over time, all innovation-focused organization will tire of the high price and challenge of finding resources they need to compete with the rest of the world. They will slowly move out, leaving only the antiquated left to drive Texas’ economic recovery and shape the next generation of businesses and business leaders.
As tech-centric corporations leave the state, interest and endowments for many university programs will falter. Computer science, math science, communications, marketing degrees will go the way of the Dodo. With web technology so interwoven into so many disciplines, who knows what other engineering and business programs will be affected. The good news many other states have fine universities to fill the void and attract Texas’ most industrious minds.
Ironically, there will still likely be humanities programs where undergraduates with a modicum of research can uncover decades of fiscal theory that establish how destructive taxation of vital professional services are.
- Report of Texas Internet Tax Policy Working Group recommending the repeal of the data processing and information services rules
- Understanding Texas sales tax for web related professional services
- Petition to End Texas' Web Innovation Tax