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Bryley Basics (in 100 words): Mass. enacts sales tax on Computer Services

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Massachusetts is now one of the few states collecting sales tax on services; the 6.25% tax targets specific computer system design services as of July 31st.

The legislation was approved July 24th, 2013 with the intent to tax customization services; the relevant, broadly worded phrases:

  • “’Computer system design services’, the planning, consulting or designing of computer systems that integrate hardware, software or communications technologies…”
  • “…modification, integration, enhancement, installation, or configuration of standardized software.”

See Section 48 and Section 49 of Chapter 46 of Massachusetts Session Laws at https://malegislature.gov/Laws/SessionLaws/Acts/2013/Chapter46 for details.

Fortunately, this legislation was followed on July 25th with guidance from the Massachusetts Department of Revenue (DOR) in Technical Information Release (TIR) 13-10, which helped to narrow the discussion with these clarifications:

  • “…generally intending to 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 systems…”
  • “…may also be described as customization services with respect to prewritten software.”

TI 13-10 also provides guidance on sourcing; when the tax would be applied if the provider or consumer occupies multiple tax jurisdictions.  TIR 13-10 is available at http://www.mass.gov/dor/businesses/help-and-resources/legal-library/tirs/tirs-by-years/2013-releases/tir-13-10.html.