This bill is extremely complicated and riddled with glaring loopholes that I tried to explain to the Senate Finance Committee to no avail. The bill’s goal is to tax only the download equivalent of shrink-wrapped software, which is currently taxable (which by the way, is how they avoid the whole TABOR amendment issue). The problem is that software is a big amorphous mess that defies almost any attempt to rein it into legal language.

For example, most software solutions for companies involve combining a number of pre-packaged software solutions into a larger, custom solution. Does the tax apply to the components of the custom software? If a client buys a software solution from a vendor and then has that vendor customize that software, do you deduct from the software tax based on the lines of code customized?

Try as they might, the Senate did not have a good answer for these questions, but passed the bill anyway. See, the biggest problem with this bill is that is can discourage companies from entering our State, but offers software companies a dozen ways to avoid these taxes simply by changing how they structure their work contracts.

Another oddity: They explicitly have excluded SaaS models from the tax, for some sensible reasons. However, at Planet Telex we sell our inTouchUI as either a download that a customer pays once for, or as a monthly service. So we have a single code base that is taxable if we sell it one way, not taxable if we sell it another. Will this ruling have the odd effect of pushing more companies to adopt SaaS business models? I expect so.

I also brought up another glaring loophole that was misunderstood by the Senate and not addressed at all. It is this: software will be taxed based on a “use model.” This basically means that purchasers should pay a tax per user of the software. They did this so that the physical hosting of the software (where they data centers are) wouldn’t make any difference, hoping this would avoid a mass migration of data centers out of the state. So customers are to be taxed per user of the software at the time of purchase.

Put yourself in the shoes of a CEO trying to get his company through this recession. You have 25 employees and you need a specific software package that would be taxed by this law. That tax will be incurred at the time of purchase for the number of users who need access to the software. Let’s say that ideally, you want all of your employees to use this software, but don’t want to pay tax on 25 users. Software vendors have long known that people take liberty with the licenses we sell them. Odds are that CEO buys a license for only a couple users within that company, and somehow all 25 people will end up using it. Now the state and the vendor get short changed.

Of course, the legality of all of this hinges upon whether this is a new tax or an existing tax. Those that want to you believe this is an existing tax argue that a download is no different than a CD or DVD contained in a box. Oh, except that one is a “tangible personal asset” and the other is not, which is the litmus test they are using to make this determination.

I have downloaded thousands of .zip and .exe files in my day, yet I’ve never held one in my hand. The state has some powerful legal minds working on this bill, but the one thing they will never be able to convince me of, is that bits are tangible. I’ve been in the software business for over 10 years now. I have never seen a bit, felt a bit, heard one, nor tasted one. I interface with software that flips bits on and off, but I don’t even consider that tangible. I don’t have any disks for most of my software- I therefore cannot hold Google Chrome in my hand. It’s an asset to be sure. Personal? Maybe. Tangible? Definitely not.

The saddest thing is that because most of the money these new bills raise is to be spent on education it seemingly pits the software industry against the welfare and education of our youth, which is exactly how the Senate Democrats see this issue. It is a particularly unfair way to look at it, because the software industry in CO has been working hard to improve education throughout the state. The CSIA and Planet Telex were among many software related entities at this year’s STEMapalooza, an event meant to encourage kid’s interest in science and math. One of the most talented programmers I know has been working on a computer based learning system for kids for the last 2 years. Many of us have kids of our own. Of course we want our kids to have the best education possible. I don’t even have kids and I have been trying to connect with educators on using new multi-touch devices (like the Microsoft Surface) to enhance our classrooms. We all understand that our kids are the key to success in the future for our nation and state.

The problem with HB 1192 is that it is illegal, won’t do much to help, and will stifle our technology sector. It is illegal because it violates TABOR. It won’t help much because it has a ton of loopholes in addition to not helping much in the first place (it fills in only the tiniest fraction of our deficits). It will stifle technology because technology companies are very mobile and have a habit of setting up shop in the friendliest environment for their business.

For a long time, Colorado has been a very friendly environment to software companies. Ergo, software companies have come here in droves and some have flourished. All have created jobs. There are those of us that believe that Colorado’s technology sector is a major reason why our state is faring better than the national average in this recession (both unemployment and deficit are better here than most states).

Those who know me know that my politics run more liberal than conservative, but I am as always, an independent. So I feel a little weird being all cozy with Republicans on this issue, but the plain fact remains that I don’t think this bill will do very much good and will do some damage. It saddened me yesterday to lose right down party lines. Even a few sensible amendments from Keith King (R) were roundly rejected along party lines. If our political system is broken, it’s because people no longer make decisions in governance, political parties do. And while you can reason with a person, you can’t reason with a party.

The bill is still going in the House, but hope is not totally lost.  Apparently the word is getting out there and the resistance is growing.  The CSIA has posted a new article on exactly why this bill is so damaging and the efforts to stop it here.

- UPDATE Jan. 28th, 2:30PM -

Bad news, HB 1192 advanced this morning, 6 voting for, 5 against.  It is scheduled to be heard before the House tomorrow.  There is still time to voice your opposition though, call or email the representatives today, you can see a list of ALL members of the house here.

The new tax regulations will mean that:

• Data centers will have to collect tax from all of its customers that had “users” with access to the SaaS system located in Colorado.
• Charges to customize “base software” could be taxable if not separately stated from the overall purchase of software.
• Taxable software would include all prewritten updates/upgrades.  If these charges are not separately stated from a maintenance fee, the full charge for maintenance and update becomes taxable.

Not to mention that this is a NEW TAX that we, the people, CANNOT VOTE ON.  This is a violation of our state constitution (the TABOR amendment).  So, this is an illegal tax that will drive jobs out of our state.

- UPDATE 3:10PM -

The measure is HB 1192 and is being lumped together with twelve other exemption/credit reversals in an effort by the governor’s office to rush this through legislation. It will be voted on Wednesday, Jan. 27th.

- Original Post -

This very week the Colorado House Appropriations Committee is going to vote on whether to levy additional taxes on software in the state of Colorado. This would make Colorado only 1 out of 11 states to enact such measures and will likely put the brakes on our state’s blossoming tech industry.

Through the CSIA and their relationship with the Governor’s office, we have learned that not only is the house committee trying to fast track the vote on the legislation (they are voting early this week!), but also that its effective date has been accelerated to March 1 instead of July 1.

To make matters worse, the committee and Governor’s office have yet to share the specific language of the bill with the public. What we know is on the table are additional taxes on electronic downloads, SaaS-sold software, custom software development, and even “IT services” (as vague as that is).

The CSIA has estimated that this will likely add an 8-10 percent tax burden to all software purchases across the state. Technology companies and professionals in Colorado already spend 1 to 2 billion dollars in taxes a year, and this new tax would only deepen that burden.

As the majority owner of a small software development company, I would like to make it clear to the house committee that if this proposal is passed, companies will flee the state. Unlike most other industries, software development can be done from anywhere in the world, and team members can collaborate across continents. Realizing this, it should also be understood that to attract software companies to your state and city, you must provide an environment that attracts them. This is indeed what has been happening across our state, even in the midst of the recession, Boulder especially.

Boulder is a hot bed of tech startups. According to a Business Week analysis, Boulder came in first in a list of “Top Small Cities for Startups”, citing 5.5 startups per 1000 inhabitants. There are a lot of small cities around this nation that would love to claim this mantle, and while the Boulder culture is well suited to the startup lifestyle and we who live in both Denver and Boulder love to live and work here, that is not powerful enough to fight the sheer economics of the situation. If I’m put into the situation where it is either move out of town or close shop on Planet Telex, I’ll be moving- and I’d wager most small companies are in the same boat.

The 5500 technology companies employing over 175,000 people in Colorado are a major reason why Colorado has only 7.5% unemployment right now as opposed to the national average of 10%. I can’t believe that those in governance want to jeopardize that right now. 2009 was a tough year for most of us, and while I’ve been optimistic about 2010, it is clear to me that the industry is still not at pre-recession levels, and many of us are still struggling. This proposal does nothing less than kicks us while we’re down. It will hurt my company, it will hurt many other small companies in Colorado, it will deter new companies from moving to Colorado, and will ultimately hurt the future development in this state.

The CSIA is working with several law firms and lobbyists to fight this new measure, but that effort needs support from the industry. To that end, I encourage anyone who will be affected by this new legislation to call or email the house committee representatives and voice their dissent. Below are phone numbers and email addresses of key people on the House Committee and the Governor’s office. Urgent action is needed; remember they might vote as early as today.

House Committee Representatives:

Governor Ritter’s office: 303-866-2471

Google entered this market in early 2006 knowing both of these things and has worked hard to make Google.cn the most popular western based Internet site in that country, with an estimated 80 million users- almost a quarter of all internet users in the country. Now Google and the Chinese government are engaged in a very high-stakes game of chicken and both have a lot to lose.

When Google entered the Chinese marketplace, the government was putting the finishing touches on a program it had been developing for the last 8 years. Known as the “Golden Shield Project” officially and unofficially as the “Great Firewall of China”, this project is as close as any real government has ventured into the Orwellian dystopia of 1984. According to the International Centre for Human Rights and Democratic Development, its ultimate objective is to “integrate a gigantic online database with an all-encompassing surveillance network – incorporating speech and facial recognition, closed-circuit television, smart cards, credit records, and Internet surveillance technologies.”

From a western perspective, that sounds downright evil. Google’s motto is famously, “Don’t be evil.” How did they reconcile this in moving into China? According to David Drummond at Google, they “launched Google.cn in January 2006 in the belief that the benefits of increased access to information for people in China and a more open Internet outweighed our discomfort in agreeing to censor some results.”

They agree that censorship is bad, but agreed to do to it because basically, they believe that the flood of information is too great for the Golden Shield to catch everything and the information that did get though would benefit the people of China and the ideals of free speech. Making that argument does have a “pact with the devil” feel to it, but the reality is that Google was largely correct. Four years later it turns out that Google.cn users are on average better educated and wealthier than those who use Baidu.com, the search engine used by the majority of Chinese Internet users. As in most countries, these are assumed to be the most liberal segment of the population, and those who most value free speech. They are also the ones who are best equipped to bypass government censorship.

But the paranoia of the Communist Party of China knows no bounds. Either that or they are extremely sensitive people. Either way, anyone who says anything remotely critical of them is a target to be shut down. This includes mentioning Tiananmen Square, Tibet or the Dali Lama, Taiwan, Uighur riots, pollution problems, or their human rights violations, of which there are many. If you are in China and search for any of these things, Google will likely tell you, “In accordance with local laws, regulations and policies, part of the search result is not shown.” This is part of their self-censorship deal with the government. The Chinese government tells Google which search terms to censor, then watches Google big brother style to make sure Google complies.

No doubt this situation was unpalatable to Google executives at the time, but even more than their “wedge of free speech” argument, they put up with it because of the incredible amount of money they could make in the most populated country on the planet. This fragile status quo has been in place since the inception of Google.cn but last Tuesday (Jan. 12, 2010) Google said no more.

The change of heart came about after Google discovered that the Chinese government was hacking their infrastructure to gain access to accounts and information pertaining to Chinese human rights activists. Not just Google accounts either; according to Google’s official statement at least twenty other large companies were targeted. Even if they were not aware of it, their company’s infrastructure was doing evil.

Google’s response has been to declare that it will no longer take any part in any censorship, even if that means getting kicked out of the country. This is where things stand now, and how this problem resolves will no doubt have far reaching implications. Google stands to lose a whole lot of money. It is rare the corporation that is willing to lose that kind of revenue for an essentially idealistic stand. Virtuous to be sure, but we can also be thankful that Google makes money hand over fist in other markets, giving them the leeway to make this threat credible.

What does the Chinese government have to lose? Mostly, it risks upsetting the 80 million Google users in China. The question then becomes, how much do these people like Google? Will they switch back to Baidu.com with a shrug, or will it cause a bigger backlash? These are among the most wealthy and educated Chinese after all, suggesting they might have elevated influence.

What I really want to ask the Chinese government is, “What are you so afraid of?” If the United States has been able to prove anything, it’s that giving citizens the ability to freely criticize their government doesn’t seem to affect that government’s power one iota.

A lot of the Chinese censorship policies seem to have their origins in preventing the China Democracy Party from gaining control. Of course, the China Democracy Party is currently banned, so if it is indeed a threat, it’s a true phantom menace.

Although I have never travelled there, I had spoken to several people that have lived in China. Based on these conversations and what I’ve read, I have concluded that if you made of list of countries at risk for a revolution or citizens revolt, China would near the bottom. Most people who understand this country agree that the average citizen of China has absolutely no interest in a new government, especially though any sort of dramatic means like a revolution or a coup. This is an ironic situation. The Chinese government has taken the most extraordinary measures to censor the information their citizens receive, all the while the citizenship of the country is among the least inclined to rise up against the state.

All of this suggests that the government of China is afraid that honest discussion of many of these important issues will turn their loyal subjects into revolutionaries. If that is indeed the case, I would suggest that any censorship is just postponing the inevitable. Tech savvy Chinese have been bypassing the Golden Shield for 5 years now, and will similarly bypass the newer “Green Dam Youth Escort.” If news from the outside world, or criticisms of the government were truly inflammatory enough as to provoke a revolution, it probably would have already happened. Rural China is isolated to be sure, but with their incredible cell phone coverage they aren’t that isolated. If their government had done something to truly make their blood boil and cause wide scale civil unrest, I’m convinced that the word would have spread.

My point is that the Chinese government is spending tons of money in this incredible effort that is either postponing the inevitable or protecting against something that will never happen. Either way, it doesn’t seem like the best way to address their concerns. If they believe that censorship is only postponing inevitable civil unrest, the best idea would be to attempt to address the reasons for that unrest, which might include censorship. On the other hand, you could be spending all this time and energy censoring people whose actions and decisions would be roughly the same had you not spent all that time and energy. In the business world, we call that bad ROI.

Clearly my advice to the Chinese government would be to allow Google to continue to operate Google.cn uncensored. From a negotiations perspective, this is the only win-win outcome. I’m convinced that such a move would be truly beneficial to both Google and the Chinese government, but I doubt the Chinese government will see it this way. To them I would ask that they objectively evaluate the value of their censorship efforts. Weigh that against openly addressing your critics and trusting your citizens to deal with criticism of their government responsibility. Such a move would generate a lot of positive press.

– Update Jan. 22 –

On this subject, Secretary of State Hillary Clinton said, “Censorship should not be in any way accepted by any company from anywhere.  American companies need to take a principled stand.  This needs to be part of our national brand.”

Well said.  Left or right leaning, all Americans should really be unified in this opinion and commend Mrs. Clinton for her concise and unambiguous analysis.

Let’s start with the fact that Planet Telex has developed and released its first major product, the jNet Menu System. Along with a few other free products, the jNet Menu System is available in our new online store, store.planettelex.net. These are two major milestones for us, and we are quite proud of our product, which we believe it to be the best menu system on the market. We built it because we had no other choice. We have bought several others in the past and have been disappointed. Having crafted a solution that can fit any desired implementation in an elegant, SEO friendly way, we are excited to share it with the world. If you need a menu system for ASP.NET or DotNetNuke, check out the jNet Menu System- you won’t find a better system on the market. I know, I’ve tried.

The process of bringing the jNet Menu System to market has given me a deep appreciation for what it takes to bring any product to market, software or otherwise. The code was largely done a few months ago, unit tests and all. Then we needed to create demos, write technical documentation, write marketing materials, figure out our licensing model, write a EULA, figure out support procedures and options, create a new merchant account, determine pricing, create graphics, in addition to building and integrating the storefront. And we have only begun thinking about our marketing strategy in any detail. Suffice to say; bringing a product to market, even one as simple as a menu system, takes a lot of effort, and I have newfound respect for anyone who manages the feat.

Besides jNet Menu System and the store, another event that marks this as a new era for Planet Telex is the press coverage we have received due to our Microsoft Surface computer. Last week, we were at the CSIA’s DEMOGala and I was interviewed by Channel 9 News. Tomorrow we head back down to the convention center for STEMapalooza, an event to promote science, technology, engineering, and mathematics to students grades K-12. These are subjects near and dear to my heart, and I can’t say how pleased we are for the opportunity to help inspire kids to excel in these fields. What’s more, Laura and I have discussed at length about potential applications for large multi-touch devices in schools, and are excited to talk with educators and hear their ideas.

I was asked several times at DEMOGala how the Surface (or multi-touch in general) fits into a web design company’s growth strategy. In reply, I first must dispel the notion that Planet Telex has ever been limited to simply the web. We are a software design and development company. It just so happens that most software worth developing is web software. In today’s world though, I think it makes less and less sense to separate web software development from other software development. Most applications made today, if not built on a web platform, still make judicious use of the internet and internet protocols. Simply put, every app is a web app.

That said, I want to emphasize that the focus of Planet Telex is, and has always been, human-computer interaction. We pride ourselves on building excellent interfaces, web-based or otherwise. In that context, developing for the Surface is the next logical step for our company as it represents a new, more intuitive way for humans to interact with the computer. In addition to our Surface, Planet Telex will be the first vendor in Colorado to offer a FlatFrog multi-touch device, a new flat panel multi-touch device hitting the market next month. We will not limit ourselves to one type of large multi-touch device, as each has benefits and limitations that must be considered before the right solution to a given situation is determined.

So have we developed anything for the Surface yet? Yup, we have just finished version one of our new Surface product, inTouch UI for Microsoft Surface. We have developed this app based on the needs of the Four Seasons Sales Center here in Denver. A prospective buyer at the sales center will be able to look at floor plans, drag the ones they like into a target area, and fill out a form with the basic lead information. It will launch at the sales center at 1080 14^th St. Denver, CO 80202 this month. This will be the flagship location in several sales centers in both the U.S. and Canada that have expressed interest in the software. Like the jNet Menu, inTouch UI for Microsoft Surface is pretty limited in scope, but it served as the perfect starting point in what we hope will be a long line of multi-touch applications. Here is a screenshot:

A capture of our new inTouch UI for Microsoft Surface

Finally, as if all the above weren’t enough to keep me busy, I want to announce that Dan and I are starting a new company, Twitterep. Twitterep is a new way to advertise using Twitter that is more credible and not prone to spam. I encourage everyone to read about it at Twitterep.com. The service is scheduled to launch in Q1 next year, but you may join now to recieve offers for free system credits as a beta tester as the system comes online.

Phew. If you are read this far, hopefully you are interested in one or more of these products. I appreciate any sort of feedback regarding any of them. Besides the comments area of this blog, you can send an inquiry to Planet Telex here, or contact me via my Twitter account: @robdixoniii.

So I spend a ton of money on something I never use, which is a clear improvement over the many years where I was among the uninsured and spent nothing on something I never used. Don’t get me wrong, I am a believer in health insurance and am keenly aware that something could happen to me at any time and I’ll be much better off having it. I don’t think I’m alone either, many of us pay a lot for health insurance we never use, just sort of hedging our bets.

Others, like my dad, have gone nearly broke from medical expenses despite having health insurance. His case is especially tragic, because he is a Vietnam War veteran that never went to the V.A., being too proud a conservative to “accept government charity.” Finally, at the brink of going completely broke, he acquiesced and now receives care from the V.A. It costs him only a tiny fraction of what he had to pay with a private insurance company. I was very happy to hear this, and reminded him that it is not charity, he deserves it.

Still, how can I be afraid of government run health care when that was the only option available to save my father from bankruptcy and maintain his health? It clearly works. What are health reform opponents so afraid of? According to Sarah Palin, they are afraid that they “…will have to stand in front of Obama’s ‘death panel’ so his bureaucrats can decide, based on a subjective judgment of their ‘level of productivity in society,’ whether they are worthy of health care. Such a system is downright evil.”

Wow, that system would be really evil; it’s a good thing that it’s entirely fictional. When I try to contemplate statements like this and why people make them, my brain hits a great big wall of WTF?!? Does Palin actually believe this stuff or does she just say these things to grab attention? Whether she does or not, her actions are far more evil than those trying to improve the health of this nation, which is in fact, very poor.

The obvious explanation for these statements is that a lot of these folks are in the pocket of insurance and big pharma. But that doesn’t fully explain statements like Palins, or these town hall mobs. The lobby against health care usually sticks to concerns about increased costs or taxes. Hillary’s heath care was defeated in the 90’s without this sort of bizarre vitriol. I can’t help but think that this has something to do with Obama being black. Notice that in Palin’s quote she singled him out, presumably stoking fears among those who fear black men. Ooh, the scary black man is going to sit in judgment of you, be afraid!

To most rational thinking Americans, I should hope that these recent displays show how inane, juvenile, and possibly racist their argument is. It also shows the public that the Republicans are not capable of debating based on facts, logic, and reason. Why else spew misinformation on a daily basis? I have learned through personal experience that many conservatives live by the debate philosophy of “he who is loudest and most worked up wins.” This tactic does indeed help them “win” many one-on-one encounters, but should not be allowed to win at the national level. They are bully tactics.

Don’t let the facts be obscured by this complete insanity. The health care bill is designed to lower people’s insurance rates through private insurance companies. The government would set up an agency to help individuals and small businesses buy cheaper insurance from these private companies (creating larger pools to buy into for example). Additionally, there will be legislation that stops the practice of dropping coverage to someone after they get sick and need it. Also under debate is the issue as to whether the government should throw their own insurance provider into the mix.

This is the point where some would cry out that we are undermining capitalism if that option were to be included in the bill. I’m a proud capitalist and have written about this issue before (see Atlas Shunned), but I seriously question the wisdom that everything should be left to free markets. We should question whether we want the health care system to rely on profit motive. I don’t doubt that the introduction of a public option would have a detrimental impact on private insurance companies’ profits, and if that happens I won’t shed a tear for the billion dollar industry that has never been particularly good to me or my family.

As I’ve stated earlier, government V.A. assistance is saving my father. My grandmother has used Medicare for years. My uninsured step-sister had to pay out-of-pocket for a $30,000 surgery. I see absolutely no reason to fear a government option. Who will benefit from it? Me and other small businesses, my dad and other retirees, my grandmother and millions of seniors, the millions of uninsured, the millions paying too much and receiving too little, and the millions of people that are sick or have chronic conditions. So to opponents, I ask you again, who are you and why do you have so much loyalty to big insurance and pharmaceutical companies?