On July 31, the Commonwealth of Massachusetts passed a bill that established a sales tax of 6.25% on all software services offered in the state. Among the few states in the U.S. that have taxable computer services, the Massachusetts tax is by far the highest – New Mexico’s tax is 5.125%, Hawaii and South Dakota are both at 4%, and neighboring Connecticut’s tax is 1%.
The new tax legislature was wrapped into a transportation bill that the Commonwealth passed without a public hearing, and the July 31 date of the vote meant that the bill became state law within a week of its passage.
Here are some preliminary facts about the new software services tax in Massachusetts based on our reading:
- The tax is generally based on where the services are provided, not where they are coming from. The tax will either be billed by the vendor or paid on the tax filing of the customer.
- The language in the bill indicates that the Commonwealth will “tax software services that modify, enable or adapt prewritten software to meet the business or technical requirements of a particular purchaser and to operate on the purchaser’s computer system.” That said, the Department of Revenue has been regularly revising its list of exceptions to this rule, as questions arise.
- National organizations with locations in Massachusetts and in other states can apply for a Multiple Points of Use (MPU) Certificate. Receipt of an MPU Certificate means that the new sales tax will only apply to software services provided in that company’s Massachusetts locations.
- The bill took effect seven (7) days after its July 31 passage. Contracts that existed prior to this date are only subject to the tax if the services were both performed and invoiced after July 31.
In order to comply, we are actively reviewing this tax independently and with the various associations we belong to and will post more as the specifics and extent of the tax become clearer.