January 6, 1999

You request a ruling on behalf of *************** ("Information Vendor") [1] concerning the application of sales and use tax to sales of database access and computer hardware to the financial services industry.

I. Facts

Information Vendor has developed a fixed income bond analytic system ("System") that can be used by money management firms, securities dealers, insurance companies, banks, corporate pension fund departments, and other fixed income market professionals. The System provides computer access to the Information Vendor's central site databases and financial models. The Information Vendor's customers can obtain customized electronic reports through a high speed network connected to servers located in New York. All information, reports and financial models are transmitted to the customer electronically. The system can be accessed through a personal computer and does not require a dedicated machine.

The Information Vendor charges its clients a fee to access the System. The Information Vendor also typically sells computer hardware such as a router and modem to its customer during the initial installation of the system. There is a separately stated charge for any computer hardware sold to the customer.

II. Discussion

Massachusetts imposes a five percent excise on all sales of tangible personal property and telecommunications services within the Commonwealth. A complementary five percent use tax is imposed on tangible personal property and telecommunications services purchased for storage, use or other consumption within the Commonwealth. G.L. c. 64H, §§ 1, 2. G.L. c. 64I, §§ 1, 2.

Taxable telecommunications are defined as "any transmission of messages or information by electronic or similar means, between or among points by wire, cable, fiberoptics, laser, microwave, radio, satellite or similar facilities but not including cable television, internet access services, electronic mail services, electronic bulletin board services, web hosting services or similar on-line computer services." G.L. c. 64H, § 1, as amended by St. 1997, c. 88, §§ 23, 102, 114.

Generally, charges for access by telephone or other means to databases stored in computer equipment not on the premises of the customer are not taxable. 830 CMR 64H.1.3(13). However, sales, leases, rentals, or installment sales of new or used computer equipment are taxable. 830 CMR 64H.1.3(4). Sales of "canned" software are also subject to tax, although sales of custom software are generally exempt as personal service transactions. 830 CMR 64H.1.3(6).

When a database service or similar information provider purchases telecommunications services, e.g., a local access telephone number or dedicated line, in connection with providing a nontaxable service to its clients, the telecommunications services are not purchased for resale and are subject to tax when they are sold in or purchased for use in Massachusetts.

III. Conclusion

The Information Vendor's fees to its Massachusetts customers for database access and electronic retrieval of financial information and computer generated models are not subject to sales or use tax. The Information Vendor's separately stated charges for computer hardware, such as modems and routers, as well as "canned" software sold to Massachusetts customers are subject to tax. The Information Vendor's purchase or use of telecommunications services in connection with the provision of a nontaxable information service to Massachusetts customers is also taxable.

Very truly yours,

/s/Bernard F. Crowley, Jr.

Bernard F. Crowley, Jr.
Acting Commissioner of Revenue

BFC:DS:tl

LR 99-2



[1] Information Vendor is an out-of-state corporation, but concedes that it has nexus with Massachusetts for sales/use tax collection purposes. Therefore, this ruling does not discuss that issue.