Monday, August 26, 2013

MA Sales & Use Tax on Computer/Software "Services"

William Delaney
Written by William Delaney, EA, ATA of Westwood, MA

Early in my military service I learned to observe this word to the wise:  If it moves, salute it; if it doesn’t, paint it!  As applied to taxation, either hit it with an income tax or hit it with a sales tax (both would be even better).  The need to raise additional revenue is ever-present, so now we have a sales/use tax on computer system design services and software modification services effective on or after July 31, 2013.  See Mass. General Law, Chapter 46, Sections 48, 49 and 89 (An Act Relative to Transportation Finance), which the Governor vetoed (because it didn’t raise nearly enough money) and the legislature overrode his veto so that it became law without his signature(because it raised as much money as they would risk being associated with).

What’s a computer design service?  The Act defines this as “…the planning, consulting or designing of computer systems that integrate computer hardware, software or communications technologies and are provided by a vendor or third party.”

What’s a software modification service?  Also referred to as “software modification services” this is a sort of catch all applied to customization services with respect to prewritten software.

Lest you wonder if anything is exempt from these services, TIR 13-10 (7/25/13) provides examples of non-taxable personal and professional services:  “(a) consulting and evaluation services with respect to existing computer systems to identify deficiencies and needs and (b) services to prepare a business to use modified software, such as training.”

So, if it moves---tax it; if it doesn’t, exempt it!  Ah, but that’s only part of the story.  Enter the Multiple Points of Use Certificate (MPU).  As described in TIR 13-10, this certificate applies when the software will be used in multiple jurisdictions (meaning both within and without Massachusetts).  By issuing the MPU certificate, the purchaser relieves the vendor from the obligation to collect the tax.  It now falls on the purchaser to “…apportion use tax on the Computer/Software Services in the manner provided in 830 CMR 64H.1.3(15).”  Perhaps one will need software services (i.e. a computer program) specifically designed to apportion the use tax?  Will the sales tax applicable to that program (if it is taxed at all) need to be apportioned?  But, I digress…

Last but not least are the Sourcing Rules – When is the Sale or Use Taxable in Massachusetts?  The sale is sourced to Massachusetts if, in the absence of an MPU certificate,

a. The purchaser receives the services at a MA business location of the vendor.

b. The vendor knows or believes he knows that the purchaser will receive the services at a MA location and/or the purchaser does not specify a location but
      the known purchaser’s address is  a MA address.

“Where a vendor of taxable prewritten software of Computer/Software Services is not required, or otherwise fails (emphasis added), to collect Massachusetts sales tax, the purchaser must remit apportioned use tax…”  See TIR 13-10, Section III D.

For additional information, refer to TIR 13-10 or

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