Sales and Use Tax on Computer and Software Services Law Changes Effective July 31, 2013
This past week the Massachusetts sales tax laws (Chapters 64H and 64I of the General Laws) have been amended to apply the sales and use tax to computer system design services. The definition of “services” has been amended to include software services that “modify, enable, or adapt prewritten software to meet the business or technical requirements”. The term “services” in this definition is limited to include the following: “telecommunication services, computer system design services and the modification, integration, enhancement, installation or configuration of standardized software”. The sales and use tax will not apply to Computer/Software Services which are personal and professional services not directly related to a particular systems integration project. These non-taxable services include consulting and evaluations of existing computer systems or services, such as training, that prepare a business to use modified software. The effective date of these changes is July 31, 2013. Contracts entered into before this date are not subject to the change in the rules. There is some uncertainty as to the level of modification that will trigger a taxable service. This uncertainty has left many wondering if simple adjustments to a software could trigger a taxable event, the answers are yet to be seen as cases are brought forth regarding this issue. The DOR has posted a “Frequently Asked Questions” page as a result of all the questions which is quite detailed. These can be found at http://www.mass.gov/dor/docs/dor/law-changes/faqss-computer-software-2013.pdf
The sales and use tax must be collected by the vendor if the sale is sourced to the purchaser in Massachusetts. The vendor’s obligation to collect the tax will be relieved if the purchaser provides a Multiple Points of Use Certificate (“MPU”). The purchaser will then be required to remit apportioned sales and use tax on the Computer/Software Services. The tax is required to be paid through Webfile for Business and reported separately. Service transactions for July 31, 2013 will be reported and paid together with the August 2013 transactions by September 20, 2013.