Massachusetts Changes Income Tax Apportionment Rules And Enacts Sales Tax On Software Services And Computer System Design Services

by Pierce Atwood LLP
Contact

Boston, MA

Massachusetts Tax Alert

The transportation finance bill recently passed by the Massachusetts Legislature contains a number of significant tax changes.  Most notably, it broadens the sales tax to apply to certain computer and software services, and amends the apportionment formula for multi-state taxpayers to reflect market-based sourcing. 

Under current law, for purposes of apportionment, sales (other than sales of tangible personal property) are attributed to Massachusetts if (i) the income-producing activity is in Massachusetts or (ii) the activity is performed inside and outside of Massachusetts and a greater portion of the activity is in Massachusetts than any other state.   Effective for tax years beginning on or after January 1, 2014, for purposes of apportionment, those sales will be sourced to Massachusetts if the taxpayer’s market for the sale is in Massachusetts.  The law contains specific rules for the sourcing of different types of sales: 

  • Real Property.  Attributed to Massachusetts if and to the extent the property is in Massachusetts. 
  • Tangible Personal Property.  Attributed to Massachusetts if and to the extent the property is in Massachusetts. 
  • Services.  Attributed to Massachusetts if the service is delivered to a location in Massachusetts. 
  • Lease or License of Intangible Property (including sales where payment is based on productivity, use, etc…).  Attributed to Massachusetts if and to the extent the property is used in Massachusetts. 
  • Sale of Intangible Property.  Attributed to Massachusetts if and to the extent the property is used in or otherwise associated with Massachusetts. 

The law also includes a “throwout rule” which provides that sales (other than sales of tangible personal property) attributed to a state where the taxpayer is not taxable or where the location of the sale cannot be determined shall be excluded from both the numerator and denominator of the sales factor. 

The law also applies the sales tax to (i) the modification, integration, enhancement, installation, or configuration of standardized software and (ii) “computer system design services,” which is defined as “the planning, consulting, or designing of computer systems that integrate computer hardware, software, or communication technologies and are provided by a vendor or third party.”  The law has raised significant questions, prompting the Department of Revenue to issue a Technical Information Release the day after the bill passed, and answers to frequently asked questions less than a week later.   Nevertheless, the very short period between the bill’s passage and the effective date of this provision (just 7 days) has created substantial challenges for taxpayers. 

The change has significant implications for computer and software vendors, as well as consumers of these services.  Massachusetts vendors will generally be required to collect and remit the new taxes where the sale is sourced to Massachusetts except where the consumer provides a “Multiple Points of Use Certificate.”  Where a vendor is not required to collect the tax, or otherwise neglects to collect the tax, the consumer is liable for use tax on the sale. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pierce Atwood LLP | Attorney Advertising

Written by:

Pierce Atwood LLP
Contact
more
less

Pierce Atwood LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.