Current through Register 1531, September 27, 2024
(1)
Statement of Purpose;
Effective Date; Outline of Topics.
(a)
Statement of
Purpose. The purpose of 830 CMR 64H.1.3 is to explain the
application of the Massachusetts sales and use taxes to computer products and
software.
(b)
Effective
Date. 830 CMR 64H.1.3, effective October 20, 2006, applies to
transactions on and after April 1, 2006.
(c)
Outline of
Topics. 830 CMR 64H.1.3 is organized as follows:
1. Statement of Purpose; Effective date;
Outline of Topics
2.
Definitions
3. General
Rules
4. Sales, Leases, and Rentals
of Computer Hardware
5. Sales,
Leases, Licenses and Rentals of Masters Related to the Rights to Reproduce
Computer Software
6. Sales, Leases,
Licenses and Rentals of Custom Computer Software
7. Optional Software Maintenance
Contracts
8. Furnishing of
Information to Customers
9.
Processing of Data Furnished by Customers
10. Additional Copies of Custom Software or
Personal Reports
11. Training
Services and Materials
12.
Transmission of Data
13. Access to
Database Services
14. Other
Miscellaneous and Nontaxable Services
15. Multiple Points of Use
Certificates
(2)
Definitions. For
purposes of 830 CMR 64H.1.3 the following terms have the following meanings:
Canned Software, see
Prewritten Software.
Commissioner, the Commissioner of
Revenue or the Commissioner's duly authorized designee.
Computer, an electronic device that
accepts information in digital or similar form and manipulates it for a result
based on a sequence of instructions.
Computer Equipment, computer hardware
and any software loaded onto the hardware prior to sale.
Computer Hardware, the physical
components of a computer system.
Computer Software, a set of coded
instructions designed to cause a computer or automatic data processing hardware
to perform a task.
Custom Software, a software program
prepared to the special order of a customer that is not prewritten
software.
Database, a collection of interrelated
data in a form capable of being processed by a computer, organized to
facilitate efficient and accurate inquiries and updates.
Delivered Electronically, delivered to
the purchaser by means other than tangible storage media.
Department, the Department of
Revenue.
Electronic, relating to technology
having electrical, digital, magnetic, wireless, optical, electromagnetic, or
similar capabilities.
Engaged in Business in Massachusetts,
see M.G.L. c. 64H, § 1.
Imprinted Magnetic Media, magnetic
media which have computer-readable programs or data imprinted onto them.
Lease, a lease, rental, or any other
temporary transfer of possession or control for consideration, regardless of
how the transfer is characterized by the parties.
License, the right to use, copy, or
access software, regardless of the location or ownership of any server on which
the software may be installed. Unlike a lease, a licensing arrangement may or
may not be time limited.
Load and Leave, delivery to the
purchaser by use of tangible storage media where the tangible storage media is
not physically transferred to the purchaser.
Magnetic Media, storage media, such as
hard disks, floppy disks, diskettes, magnetic tape, cards, bar code, or any
similar medium that is computer-readable.
Prewritten Computer Software (Prewritten Software),
also Known as Canned Software and Standardized Software, computer
software, including prewritten upgrades, which is not designed and developed by
the author or other creator to the specifications of a specific purchaser. The
combining of two or more prewritten computer software programs or prewritten
portions thereof does not cause the combination to be other than prewritten
computer software. Prewritten computer software includes software designed and
developed by the author or other creator to the specifications of a specific
purchaser when it is sold to a person other than the specific purchaser. Where
a person modifies or enhances computer software of which the person is not the
author or creator, the person shall be deemed to be the author or creator only
of such person's modifications or enhancements. Prewritten computer software or
a prewritten portion thereof that is modified or enhanced to any degree, where
such modification or enhancement is designed and developed to the
specifications of a specific purchaser, remains prewritten computer software;
provided, however, that where there is a reasonable, separately stated charge
or an invoice or other statement of the price given to the purchaser for such
modification or enhancement, such modification or enhancement shall not
constitute prewritten computer software.
Printed Matter, human-readable
information reproduced via printing, photocopying, or similar method of
reproduction.
Processing of Data Furnished by
Customers, the processing of raw data provided by customers into
reports delivered in tangible form or delivered electronically that are not or
may not be incorporated in reports furnished to other persons.
Program, the complete sequence of
computer instructions necessary to solve a problem, including system and
application programs and subdivisions such as assemblers, compilers, routines,
generators, and utility programs.
Reports of Individual Information,
reports or other information personal and individual in nature that may not be
or is not substantially incorporated in reports furnished to any other
purchaser, provided via printed matter or other tangible media.
Reports of Standard Information,
reports or other information that are not reports of individual information,
provided via printed matter or other tangible media.
Tangible Personal Property, personal
property that can be seen, weighed, measured, felt, or touched, or that is in
any other manner perceptible to the senses. Tangible personal property includes
electricity, gas, steam, and prewritten computer software. See
M.G.L. c. 64H, § 1.
(3)
General Rules.
(a)
Sales Tax. Sales in Massachusetts of computer
hardware, computer equipment, and prewritten computer software, regardless of
the method of delivery, and reports of standard information in tangible form
are generally subject to the Massachusetts sales tax. Taxable transfers of
prewritten software include sales effected in any of the following ways
regardless of the method of delivery, including electronic delivery or load and
leave: licenses and leases, transfers of rights to use software installed on a
remote server, upgrades, and license upgrades. The vendor collects sales tax
from the purchaser and pays the sales tax to the Commissioner.
(b)
Use Tax. The
Massachusetts use tax complements the Massachusetts sales tax and is imposed on
the use, storage, or other consumption of computer hardware, computer
equipment, and prewritten computer software, regardless of the method of
delivery, and reports of standard information in tangible form purchased for
use, storage, or other consumption in Massachusetts. Apportioned Massachusetts
use tax will be imposed on prewritten software concurrently available for use
in multiple jurisdictions within the meaning of 830 CMR 64H.1.3(15) without
regard to any of the following:
1. The
jurisdiction where the purchaser takes delivery;
2. The location or ownership of any server on
which the software may be installed; or 3. Whether the purchaser gives the
seller an MPU exemption form.
(c)
Exceptions to the
Massachusetts Use Tax. The Massachusetts use tax is not imposed
if:
1. The vendor collected and paid the
Massachusetts sales tax on the sale of the tangible personal
property;
2. The transaction is
exempt from the sales tax; or
3.
The purchaser paid a tax or reimbursed the vendor for a tax imposed by another
state or territory of the United States on the transaction, provided that:
a. The tax was legally due, without right to
a credit or refund; and
b. The other
state or territory allows a corresponding exemption for tax paid to
Massachusetts.
c. If the tax paid to
the other state or territory was less than 5%, the exemption does not apply and
Massachusetts use tax is imposed on the difference between the two
rates.
(d)
Collection and Payment of the Massachusetts Use Tax.
1.
Collection and Payment of Use
Tax by Vendor Engaged in Business in Massachusetts. When a vendor
that is engaged in business in Massachusetts sells taxable software, computer
hardware, computer equipment or reports for use, storage, or other consumption
in Massachusetts, the vendor shall collect the Massachusetts use tax from the
purchaser and remit the tax to the Department. The Department will presume that
tangible personal property sold by any vendor for delivery in Massachusetts is
sold for use, storage, or other consumption in Massachusetts.
2.
Payment of Use Tax by
Purchaser. If the vendor does not collect either the Massachusetts
sales tax or the Massachusetts use tax, the purchaser should pay the five
percent use tax to the Department. See
830 CMR
62C.16.2. For software concurrently available
for use in multiple jurisdictions, the purchaser must remit apportioned use tax
to Massachusetts as provided in 830 CMR 64H.1.3(15).
(e)
Non-taxable
Sales. Sales of custom software, personal and professional
services, and reports of individual information are generally exempt from
Massachusetts sales and use taxes.
(4)
Sales, Leases, and Rentals of
Computer Hardware.
(a)
Tax Treatment of Computer Hardware Sales. Sales,
leases, rentals, and installment sales of new or used computer hardware are
generally taxable. See830 CMR 64H.1.3(3).
(b)
Exemptions from the Sales
Tax. The exemptions from the Massachusetts sales tax are contained
in M.G.L. c. 64H, § 6.
(c)
Installation Charges. Separately stated charges for
installing computer hardware of any type are not taxable, so long as the
charges are reasonable and set in good faith.
(d)
Leases of Computer
Hardware.
1.
General. Leases of computer hardware are generally
taxable in the state where the hardware is physically located.
2.
Collection and Payment of
Sales Tax on Leases. Lessors of computer hardware will collect and
pay sales tax on lease and rental payments as the payments become due. A
lessor's gross receipts for any period are the amounts due during that period
under the terms of the lease.
3.
Access to Computer Hardware on the Premises of
Another.
a. Leases include
agreements under which a person has access to computer hardware not on that
person's premises, if that person or that person's employee operates, directs,
or controls the computer hardware.
b. For rules applicable to access of
prewritten software on the premises of another, See830 CMR
64H.1.3(3).
(e)
Installment Sales of Computer Hardware.
1. Installment sales of computer hardware are
generally taxable.
2. Vendors under
an installment sales contract for computer hardware should collect and pay
sales tax on the total sales price of the hardware. The tax is payable on the
return due date immediately following the date of the sale.
3. Separately-stated interest charges under
installment sales contracts are not included in the sales price subject to tax
as long as the interest charges are set in good faith.
(f)
Discounts, Coupons, and
Rebates. For the sales tax treatment of discounts, coupons, and
rebates, see
830 CMR
64H.1.4.
(g)
Trade-ins of Computer
Hardware.
1.
Definition. For the purposes of 830 CMR 64H.1.3(4)(g),
the following term has the following meaning:
Trade-in, a previously purchased item
transferred to a vendor as full or partial consideration for the purchase of
another item.
2.
Tax Treatment of Trade-in Transactions. The fair
market value of traded-in computer hardware as of the date of the trade-in is
ordinarily included in the sales price subject to sales tax as part of the
consideration. If an item of computer hardware is returned to a vendor in
connection with the purchase of computer hardware and that item has no value,
the item is not part of the consideration for the purchase of computer
hardware. The facts and circumstances will determine the value, if any, of an
item of traded-in computer hardware.
(h)
Services Related to a Sale of
Computer Hardware.
1.
Mandatory Services. If computer hardware cannot be
purchased without services such as training, maintenance, developing custom
software, and testing, charges for the services are considered part of the
sales price and are generally taxable even if separately stated. See
also830 CMR 64H.1.3(14).
2.
Optional
Services. If the purchaser may purchase computer hardware without
additional services, separately stated charges for the services are not
considered part of the sales price for the hardware and are generally exempt.
For purposes of 830 CMR 64H.1.3, separately stated charges must be clearly
stated on the bill or invoice presented to the customer as well as on the
vendor's books and records. See also830 CMR 64H.1.3(11),
(14).
(i)
Service Contracts.
1.
Definition. For the purposes of 830 CMR 64H.1.3(4),
the term Service Contract means an agreement for only service, repair, and
maintenance (including consultation and technical assistance) of computer
hardware, which may include an agreement to supply necessary parts and
materials for repair. The agreement must be optional, as described in 830 CMR
64H.1.3(4)(h)2.
2.
Agreements to Provide Parts and Materials. If a
service contract includes an agreement to supply necessary parts and materials
for the repair of computer hardware, the charges for the service contract are
not taxable under the following conditions:
a.
The contractor should pay sales tax on purchases of parts and materials for use
primarily in service contracts;
b.
The contractor should not collect sales tax from the customers on parts and
materials provided under the service contracts; and
c. The contractor should collect sales tax
from the service contract customers for any tangible personal property not
included under the service contract for which the contractor makes a separate
charge.
3.
Adjustment for Sales Tax Paid by Contractor. If the
contractor paid sales tax on the purchase of tangible personal property for
which the contractor later collects sales tax from a customer under 830 CMR
64H.1.3(4)(i)2.c., the contractor may then supply its vendor with a resale
certificate and request that the vendor refund the sales tax paid on that
property. The vendor may seek an abatement of the sales tax previously
collected and remitted within the time limitations of M.G.L. c. 62C, § 37.
With respect to sales or use tax paid on or after January 1, 2001, the
contractor may not recover the tax by making an adjustment to its gross sales
on its next sales tax return.
(5)
Sales, Leases, Licenses and
Rentals of Masters Related to the Rights to Reproduce Computer
Software.
(a)
Definitions. For the purposes of 830 CMR 64H.1.3(5),
the following terms have the following meanings:
Master, a single unit of computer
software, custom or canned, sold for use in the production of multiple copies
of the software to be sold.
(b)
Sales of Reproduction Masters
as Part of a Sale of Rights. The sale of the right to reproduce a
program is generally subject to Massachusetts sales tax, regardless of whether
the transaction is characterized as a sale, lease, license or rental, unless an
exemption applies.
(c)
Examples.
Example 1: Acme Software Development
Co. sells prewritten software to Bates Manufacturing, Inc. As part of the
contract, Acme transfers a master of the software to Bates. The sale includes
the rights for Bates to make 100 copies of the software for use by its
employees. The total contract price is $10,000. The sales price subject to tax
is $10,000.
Example 2: Acme Software Development
Co. sells prewritten software to Copyrighted Software Corp., along with
unlimited rights to copy and incorporate the software into a spreadsheet
software package that Copyrighted will sell to its customers. The total
contract price is $10,000. The sale between Acme and Copyrighted is exempt
under M.G.L. c. 64H, § 6(r), because the software will become an
ingredient or component part of tangible personal property to be sold by
Copyrighted.
Example 3: Acme Software Development
Co. sells a master copy of prewritten software to Diligent Distributors Corp.,
along with unlimited rights to copy, market and sell the software to the
public. The total contract price is $15,000. The sale between Acme and Diligent
may be a sale for resale, providing the requirements of M.G.L. c. 64H, § 8
or M.G.L. c. 64I, § 8 are met.
Example 4: Acme Software Development
Co. sells a master copy of a word processing software package to Massachusetts
Computer Company. Massachusetts Computer Company will copy and load the
software package on to the hard drive of computers sold both inside and outside
of Massachusetts. The contract provides that Acme is paid $5,000 at the signing
of the contract and $250 for each copy of the software that is made by
Massachusetts Computer Company. The sale between Acme and Massachusetts
Computer Company is exempt under M.G.L. c. 64H, § 6(r), because the
software will become an ingredient or component part of tangible personal
property to be sold. Sales or use of the computer equipment in Massachusetts is
taxable.
Example 5: Acme Software Development
Co. sells prewritten software to On-Line Games, Inc., a Massachusetts company.
The sales price is $5,000. On-Line Games will incorporate the software into a
product that will be marketed and sold on the Internet as a game. The game may
be downloaded by the purchaser from the On-Line Games website for a cost of $5.
The sale between Acme and On-Line Games is exempt under M.G.L. c. 64H, §
6(r) because the software will become and ingredient or component part of
tangible personal property to be sold. Sales of the game to purchasers in
Massachusetts are taxable sales of prewritten software.
Example 6: Acme Software Development
Co. sells prewritten software to On-line Products, Inc., a Massachusetts
company. The sales price is $12,000. On-line Products will incorporate the
software into a digital product that is not software and is sold on the
Internet. The digital product may be downloaded by the purchaser from the
On-line Products website for a cost of $5. The software becomes a part of a
digital product that is not taxable when downloaded to customers in
Massachusetts; the exemption in M.G.L. c. 64H, § 6(r) does not apply. Acme
must collect sales tax on the $12,000 sales price paid by On-line for the
prewritten software.
(6)
Sales, Leases, Licenses and
Rentals of Custom Computer Software.
(a)
Exemption for Sales of Custom
Software. Sales of custom software are generally exempt from sales
tax as professional service transactions regardless of the method of
delivery.
(b)
Professional Service Transactions. A professional
service transaction for custom software is one in which the principal object of
the purchaser is the professional and personal services of a programmer,
systems analyst, or other person who imprints or has imprinted the result of
the services on magnetic media, the cost of which is an inconsequential element
of the cost of the entire transaction. The cost of the medium is the price paid
for the medium by the programmer, regardless of any improvement made to the
medium by the programmer.
(c)
Definition of "Inconsequential Element". The term
"Inconsequential Element" generally means a cost of less than 10% of the total
contract price. The definition of "Inconsequential Element" is only a guideline
and may vary depending on the facts and circumstances of a particular
transaction.
(d)
Custom
Modifications to Prewritten Software. Sales of custom
modifications to prewritten software are generally not taxable if the sales
price of the prewritten software and the charges for the custom modification
are separately stated. The charges must be reasonably allocated and determined
in good faith. For purposes of 830 CMR 64H.1.3, separately stated charges must
be shown on the bill or invoice presented to the customer as well as on the
vendor's books and records. The sales price of the original prewritten software
is taxable.
(e)
Documentation Regarding Costs of Tangible Personal Property in
Relation to Entire Transaction. The vendor or purchaser may state
in transaction documents that the estimated cost of tangible personal property
related to a custom modification transaction or any other service transaction
described in 830 CMR 64H.1.3, is an inconsequential element of the entire
transaction. This statement will not be considered a separate statement of the
cost of the tangible personal property. The cost of the tangible personal
property so estimated is not taxable solely because of this
statement.
(f)
Custom
Software Sold to Subsequent Purchasers. If custom software sold to
a single purchaser is later sold to others, the later sales are sales of
prewritten software. The sale of custom software to a subsequent purchaser that
meets the requirements for a custom modification under 830 CMR 64H.1.3(6)(d) is
not taxable.
(7)
Optional Software Maintenance Contracts.
(a)
Definition. For
the purposes of 830 CMR 64H.1.3(7), the term Computer Software
Maintenance Contract means an agreement to furnish maintenance
services, upgrades, enhancements or updates of prewritten software, which may
include an agreement for service, repair, and maintain computer hardware.
Maintenance services may include including technical assistance and
consultation. The agreement must be optional, as described in 830 CMR
64H.1.3(4)(h)2.
(b)
Tax
Treatment of Optional Computer Software Maintenance Contracts.
Charges for optional software maintenance contracts that do not include
upgrades are generally not taxable. An optional contract is one that the
customer is not obligated to purchase as a condition to acquiring the software.
Charges for an optional maintenance contract must always be separately stated
on the invoice to the customer.
(c)
Computer Software Maintenance Contracts.
1.
Charges for Upgrades and
Services not Separately Stated. For transactions on and after
January 1, 2007, if the charges for upgrades and services are not separately
stated, tax applies to 50% of the sales price of the maintenance
contract.
2.
Charges
for Upgrades and Services Separately Stated. If an upgrades plus
service contract separately and reasonably states charges for the service and
upgrades portions of the contract, charges for the upgrades portion are
taxable, and charges for the service portion are not taxable.
3.
Cost of Upgrades to be
Reasonable and in Good Faith. If the separately stated costs of
upgrades to be supplied appear reasonable and are set in good faith, they will
be accepted by the Commissioner. If the estimated costs of upgrades to be
supplied do not appear reasonable, the Commissioner may assess additional sales
tax using the method in 830 CMR 64H.1.3(7)(c)1.
(d)
Prior Relationship of
Contractor to Vendor not Relevant. The rules set out in 830 CMR
64H.1.3(7) apply regardless of the fact that the contractor may have been a
vendor who sold the customer an item of computer hardware.
(e)
Examples:
Example 1: Faithful Computer Services,
Inc., entered into an agreement with General Medical Professional Corporation
to service personal computers General recently purchased from another vendor.
For $1,500 a year, Faithful will periodically check General's personal
computers and will be available to correct any problems that arise. Faithful
has also agreed to replace any worn-out parts at no charge during the term of
the agreement. Faithful should pay sales tax on all parts it buys to service
General's computers and should not charge General sales tax for the parts.
Faithful's $1,500 yearly charge to General is not taxable.
Example 2: Floppy Disk Co. sold
General Medical Professional Corporation a prewritten billing software package
for $1,500 for use on personal computers General purchased from another vendor.
Floppy also entered into an optional agreement for $600 with General to
maintain the software package, replace defective disks, and provide any updates
to the package if released. Floppy is unable to determine the value of any
upgrades at the time of sale. Floppy must collect and remit tax on $1,800
($1,500 plus 50% of $600).
(8)
Furnishing of Information to
Customers.
(a)
Tax
Treatment of Sales of Reports of Standard Information. Sales of
reports or other information on printed matter or magnetic media, sold or
intended to be sold to two or more purchasers, are generally taxable. Such
reports may reflect collection, compilation, or analysis of information.
Examples include database files, mailing lists, market research, and
surveys.
(b)
Exemption
for Sales of Reports of Individual Information. The sale of a
report of individual information, whether printed or on magnetic media, is not
taxable if the report may not be or is not substantially incorporated into
reports furnished to other persons.
(9)
Processing of Data Furnished
by Customers.
(a)
Exemption for Processing of Data Furnished by
Customers. Charges for processing data furnished by customers are
generally exempt from sales tax, regardless of the method of delivery of the
processed information to the customer. Processing data may include the
following: summarizing data, computing data, extracting data, sorting files,
and sequencing data as well as services that provide the customer or subscriber
with additional, different, or restructured information. The following are
examples of exempt data processing: charges automated teller machine (ATM)
terminal driving services, electronic funds transfer services, or credit card
or check verification services. Changes to the format, code or protocol of the
subscriber's content or information solely for the purposes of transmission are
not a data processing service. Telecommunications services consumed in the
provision of data processing services are taxable.
(b)
Tax Treatment of Converting
Information From One Medium to Another. If the necessary steps for
processing data furnished by a customer have been completed and the customer
pays a vendor to convert the data from one medium to another tangible medium,
the separately stated charges for conversion are taxable, including charges for
transferring data from a storage medium compatible with one computer system to
a storage medium compatible with another.
(c)
Examples:
Example 1: Hasty Manufacturing Co.
contracted with International Research Associates to process the results of a
consumer market survey. Hasty sent the raw data, completed questionnaires, to
International. International will enter the data into its computer, tabulate
the results, and analyze the research. International will present Hasty with a
printed report with its conclusions and a magnetic tape containing all the
tables and graphs. International's charges are not taxable.
Example 2: Hasty Manufacturing Co. has
a payroll software package that computes each employee's pay. Hasty processes
its entire payroll on its own computer but pays International Banking Services
Corp. to print the checks. International's charges for printing are
taxable.
Example 3: Hasty Manufacturing Co.
just bought a new word processing system. Hasty paid International Conversion
Services, Inc., to transfer the information on the diskettes used on the old
system to new diskettes. International's charges for the new diskettes are
taxable.
(10)
Additional Copies of Custom Software or Personal
Reports.
(a)
General. Where a vendor sells custom software or
reports of individual information to a purchaser who requires multiple copies,
separately stated charges for copying the custom software or report in tangible
media are taxable, regardless of the exemptions of 830 CMR 64H.1.3(6) and 830
CMR 64H.1.3(8)(b).
(b)
Tax Treatment of Charges for Replacement Copy Provided in Tangible
Media. Separately stated charges for replacing custom software
which has been rendered unusable are generally taxable. See
also830 CMR 64H.1.3(7)(b) through (f).
(11)
Training Services and
Materials.
(a)
Training Services. Charges for training not provided
as a mandatory part of the sale of computer hardware are not taxable.
See830 CMR 64H.1.3(4)(h)1., on charges for mandatory
training.
(b)
Training
Materials. Charges for instruction books and manuals in tangible
form and canned tutorial software are generally taxable.
(12)
Transmission of
Data. Taxable telecommunications services, such as telephone and
telegraph services, include transmission, conveyance, or routing of voice,
data, or any other information or signals to a point, or between or among
points. The term "telecommunications services" includes, without limitation,
such transmission, conveyance, or routing in which computer processing
applications are used to act on the form, code or protocol of the content for
purposes of transmission, conveyance or routing without regard to whether such
service is referred to as voice over Internet protocol services or is
classified by the Federal Communications Commission as enhanced or value added.
Charges for encryption services, security authentication and data monitoring
provided with data transmission services are also subject to tax as
telecommunications services. Changes to the format, code or protocol of the
subscriber's content or information solely for the purposes of transmission are
not a data processing service for purposes 830 CMR 64H.1.3(9).
(13)
Access to Database
Services.
(a)
Exemption for Database Services. Charges for access by
telephone or other means to databases stored in computer hardware not on the
premises of the customer are generally not taxable.
(b)
Retrieval of Data by
Customer. In a database service transaction, the customer does not
direct or control the entry of data into the database but merely selects data
for retrieval.
(c)
Tax
Treatment of Printing Charges. Separate charges for the actual
printing of retrieved data are generally taxable. Separate charges for
transmitting retrieved data for a customer who will print the data on the
customer's printer are not taxable.
(d)
Tax Treatment of Related
Computer Hardware Transactions. The sale of a computer terminal or
other computer hardware used in retrieving data from a database is generally
taxable.
(14)
Other Miscellaneous and Nontaxable Services.
(a)
General Rule.
Generally, charges for the access or use of software on a remote server are
subject to tax. However, where there is no charge for the use of the software
and the object of the transaction is acquiring a good or service other than the
use of the software, sales or use tax does not apply.
See,
e.g., 830 CMR 64H.1.3(13).
Example 1: Bob goes to an Internet
website that hosts auctions of various items of tangible personal property and
places a bid for $100 on an item of vintage clothing. Although Bob has accessed
and used software on a remote server, the object of the transaction is
acquiring the item on which he is bidding in the on-line auction. No tax
applies to the access. If Bob's bid is the winning one, sales or use tax is due
on any tangible personal property purchased at the on-line auction that is
shipped to a Massachusetts customer, however the purchase of clothing in this
example is exempt under M.G.L. c. 64H, § 6(k).
Example 2: Ann wants to acquire
prewritten computer software to prepare her personal income tax return. The
vendor of the software gives her the option of purchasing the software on a
disk that will be mailed to her home or she can pay to securely access the
software on the vendor's server through the Internet and use of a personal
access code. In either case, the functionality of the software is the same. The
object of the transaction here is the use of the software. Charges for the
prewritten software will be subject to sales or use tax regardless of the
method of delivery chosen by Ann.
(b)
Tax Treatment of
Miscellaneous Service Transactions. Charges for web site hosting,
designing computer systems, designing data storage and retrieval systems,
consulting services, feasibility studies, evaluations of bids, technical
analysis, programming, and the like are generally not taxable if they are not
part of a sale of computer hardware or prewritten software. If the
miscellaneous services are a mandatory part of a taxable sale of computer
hardware or prewritten software, the charges for the services are taxable.
See830 CMR 64H.1.3(4)(h).
(c)
Standards for Determining
Whether Services are Separate From a Sale of Computer Hardware or Prewritten
Software. The following factors indicate, but do not determine,
whether a particular service is separate from a sale of computer hardware or
prewritten software.
1. Any association or
affiliation of the service contractor with the vendor;
2. The separate statement and documentation
of the charges in the vendor's books and records;
3. Whether the services are contracted for or
provided before the sale; and
4.
The language of the agreement.
(d)
Location of Performance of
Services. The place where services such as designing computer
systems, consulting, analysis, and programming are performed is immaterial to
the sales tax treatment of charges for the services.
(15)
Multiple Points of Use
Certificates.
(a)
General Rule. A business purchaser that is not a
holder of a direct pay permit that knows at the time of its purchase of
prewritten computer software that the software will be concurrently available
for use in more than one jurisdiction shall deliver to the seller in
conjunction with its purchase an exemption certificate claiming multiple points
of use, Form ST-12. Prewritten computer software, for purposes of 830 CMR
64H.1.3(15) includes, but is not limited to, computer software delivered or
accessed electronically, regardless of the location of the server where the
software is installed, software delivered by load and leave, or in tangible
form. Computer software received in-person by a business purchaser at a retail
business location of the seller is not included. Computer software for personal
use is not included.
1. Upon receipt of an
exemption certificate claiming multiple points of use, the seller is relieved
of all obligation to collect, pay, or remit the applicable tax and the
purchaser shall be obligated to collect, pay, or remit the applicable tax on a
direct pay basis. Except as provided in 830 CMR 64H.1.3(15)(a)7., a certificate
claiming multiple points of use must be received by the seller no later than
the time the transaction is reported for sales or use tax purposes.
2. A purchaser delivering an exemption
certificate claiming multiple points of use may use any reasonable, but
consistent and uniform, method of apportionment that is supported by the
purchaser's books and records as they exist at the time the transaction is
reported for sales or use tax purposes.
3. A reasonable, but consistent and uniform,
method of apportionment includes, but is not limited to, methods based on
number of computer terminals or licensed users in each jurisdiction where the
software will be used. A reasonable, but consistent and uniform method of
apportionment may not be based on the location of the servers where the
software is installed.
4. A
purchaser delivering an exemption certificate claiming multiple points of use
shall report and pay the appropriate tax to each jurisdiction where concurrent
use occurs. The tax due will be calculated as if the apportioned amount of the
prewritten computer software had been delivered to each jurisdiction to which
the sale is apportioned pursuant to 830 CMR 64H.1.3(15)(a)2.
5. A Multiple Points of Use Certificate may
not be used for software received in person by a business purchaser at a retail
store.
6. A Multiple Points of Use
Certificate may not be used for software that is loaded on computer hardware
prior to sale. In that situation, the sales tax sourcing rules for computer
hardware determine the taxability of the transaction, regardless of whether the
price for the prewritten software is separately stated.
7. The exemption certificate claiming
multiple points of use will remain in effect for all future sales eligible for
apportionment under 830 CMR 64H.1.3(15) by the seller to the purchaser, except
as to the subsequent sale's specific apportionment that is governed by 830 CMR
64H.1.3(15)(a)2., until it is revoked in writing.
8. The purchase of software loaded onto a
server located in a single state that will be available for access by a
purchaser's employees in multiple jurisdictions is concurrently available for
use in more than one jurisdiction within the meaning of 830 CMR 64H.1.3(15) if
the purchaser knows at the time of its purchase that the software will be
concurrently available for use in multiple jurisdictions.
9. Delivery of a copy of the software is not
necessary for the software to be "concurrently available for use in more than
one jurisdiction" within the meaning of 830 CMR 64H.1.3(15).
10. The purchase of a license that allows the
licensee/customer to make copies of software that will be used in more than one
jurisdiction by the customer is concurrently available for use in more than one
jurisdiction within the meaning 830 CMR 64H.1.3(15) if the purchaser knows at
the time of its purchase that the software will be concurrently available for
use in multiple jurisdictions.
11.
Examples:
Example 1: Prewritten software is
installed on a server located in another state but concurrently available for
use by purchaser's employees in Massachusetts as well as other states. The
purchaser gives the seller a properly completed MPU form. Part of the sales
price of the software will be apportioned to Massachusetts for sales/use tax
purposes.
Example 2: Prewritten software is
installed on a server located in Massachusetts but concurrently available for
use by purchaser's employees in other states as well as Massachusetts. The
purchaser gives the seller a properly completed MPU form. Part of the sales
price will be apportioned to those other states for sales/use tax
purposes.
Example 3: A business in Massachusetts
purchases an enterprise license that allows the purchaser to make copies of
software (either from a master disk or downloaded copy) and those copies will
be concurrently available for use at the purchaser's business locations in
various jurisdictions. The purchaser gives the seller a properly completed MPU
form. For sales/use tax purposes, part of the sales price will be apportioned
to the other states where the purchaser is using copies of the software.
Example 4: A sale of software eligible
for MPU treatment includes a separately stated charge for a maintenance
contract including upgrades and telephone support. The charges for upgrades and
services provided under the maintenance contract are not separately stated.
Both the sales price of the software and the taxable sales price of the service
contract, determined under 830 CMR 64H.1.3(7)(c)1. are subject to MPU
apportionment.
Example 5: Prewritten software
concurrently available for use by the purchaser's employees in other states as
well as Massachusetts is delivered in a tangible medium to the purchaser's
offices in New Hampshire. New Hampshire does not impose a sales tax and the
purchaser does not give the seller a properly completed MPU form. Apportioned
use tax is due to Massachusetts.
Example 6: Prewritten software
concurrently available for use by the purchaser's employees in other states as
well as Massachusetts is delivered via a master copy in tangible medium to the
purchaser's offices in Connecticut. The vendor collects and remits Connecticut
sales tax. Providing that the conditions of 830 CMR 64H.1.3(3)(c) are met, no
additional use tax may be due to Massachusetts.
(b)
Seller Remittance of
Apportioned Tax. Notwithstanding 830 CMR 64H.1.3(15)(a), when the
seller knows that the prewritten software will be concurrently available for
use in more than one jurisdiction, but the purchaser does not provide an
exemption certificate claiming multiple points of use, the seller may work with
the purchaser to produce the correct apportionment. The purchaser and seller
may use any reasonable, but consistent and uniform, method of apportionment
that is supported by the seller's and purchaser's business records as they
exist at the time the transaction is reported for sales or use tax purposes. If
the purchaser certifies to the accuracy of the apportionment and the seller
accepts the certification, the seller shall collect and remit the tax to the
appropriate jurisdictions as provided in 830 CMR 64H1.3(15)(a)4. In the absence
of bad faith, the seller is relieved of any further obligation to collect tax
on any transaction where the seller has collected and remitted tax pursuant to
the information certified by the purchaser, provided that the seller retains
records of the methodology used to apportion the tax in addition to the
purchaser's written certification.
(c) When the seller knows that the prewritten
software will be concurrently available for use in more than one jurisdiction
and the purchaser does not have a direct pay permit and does not provide the
seller with an exemption certificate claiming multiple points of use exemption
as required by 830 CMR 64H.1.3(15)(a) or the certification required by 830 CMR
64H.1.3(15)(b), the seller shall collect and remit the tax as provided by
830 CMR
64H.6.7, unless the purchaser is otherwise
exempt.
(d) A holder of a direct
pay permit shall not be required to deliver an exemption certificate claiming
multiple points of use to the seller. A direct pay permit holder shall follow
the provisions of 830 CMR 64H.1.3(15)(a)2. in apportioning the tax due on
prewritten computer software that will be concurrently available for use in
more than one jurisdiction.
(e)
Nothing in 830 CMR 64H.1.3(15) shall limit a person's obligation for sales or
use tax to any state in which the qualifying purchases are concurrently
available for use, nor limit a person's ability under state, federal, or
constitutional law, to claim a credit for sales or use taxes legally due and
paid to other jurisdictions.
