September 25, 2012
On behalf of your client ****** (hereinafter “Company”), you have requested a letter ruling with respect to the Massachusetts sales and use tax as it applies to Company’s sales to Massachusetts customers. Specifically, you request a ruling on whether such sales are subject to the sales tax on prewritten software and telecommunications services imposed under G.L. c. 64H, §§ 1, 2. The following is your representation of the facts upon which we base this ruling. We note that no single fact is determinative in the conclusions reached in this ruling.
Company is a leading provider of virtual computing solutions or offerings. Company designs, develops and markets technologies that enable individuals and organizations to securely access information technology (by various means) ******. Some of Company’s offerings are provided principally using dedicated software resident on the customer’s computing equipment. However, the three main offerings discussed in this ruling are provided principally on-line by facilitating a connection between the customer and machines at other locations.
Each offering involves initiating and maintaining a screen-sharing connection between a host computer and one or more remote computers (or other devices) connected to the Internet. The host computer runs an operating system and/or one or more applications, and the remote computer shares screen output access to the entire desktop or a particular application on the host computer (and, if applicable, may also share access to input control via keyboard and pointing device). Company maintains a dedicated network of switches, routers, servers, storage equipment and other hardware, together with proprietary software that is stored, executed, maintained, updated and controlled on Company’s servers. The following is a description of each of the three main offerings provided by Company.
1. ****** (“Remote Access”)
Remote Access allows users to securely access and operate their personal computers from a remote location or device that connects to the user’s personal computer through Company’s web servers. Both the host computer and the remote computer or device are typically owned or controlled by the customer. ******. Remote Access’s customers pay a monthly or annual subscription fee for the unlimited ability to connect over the Internet and use a personal computer remotely from other personal computers or handheld devices. The Remote Access provided through this offering includes desktop control, printing from the host computer (the computer that is being remotely accessed) to a printer at the remote location and file transfer and synchronization between the host computer and remote location.
Company provides the Remote Access offering principally through the use of proprietary software (the “Remote Access Software” or “Remote Access”). The Remote Access Software is at all times stored, executed, maintained, updated and controlled on servers owned or leased by Company. At the time a customer initially acquires the offering, the customer installs a small applet on the host computer. The customer can then access the Remote Access offering over the Internet, using a supported web browser or a handheld device, from any location the customer chooses. After the customer logs in on the Company’s website, the Remote Access Software initiates a connection between the remote device and the host computer that provides the customer with virtual desktop access to the host computer.
2. ****** (“Remote Support”)
The Company provides two categories of the Remote Support offering. The first, ****** (“Remote Support Express”), is designed principally for individual providers of technical support services. The second, ****** (“Remote Support Corporate”), is designed for technical support organizations and internal technical support departments within businesses. Customers pay a monthly or annual subscription fee and are entitled to initiate an unlimited number of support sessions during the subscription period. In a support session, the technical support professional can view the screen output of the support recipient’s computer and can exercise keyboard and mouse control over that computer in real time. The connection between the two machines takes place over the Internet or within a local area or wide area network. None of the technical support services are provided by Company; the offering allows Company’s customers to provide such services, either independently or as a function of the customer’s in-house IT Department.
****** (“Remote Support Software”) is stored, executed, maintained, updated and controlled on servers owned or leased by Company. The Remote Support offering provides the IT support professional with a session identifier code or the professional may connect to the website through an applet installed on the support professional’s computer. The professional then communicates that code to the support recipient via telephone or email and the support recipient uses the code to log on to the session through his or her own web browser.
Once the support recipient has logged on, the Remote Support Software establishes an active session between the two computers that provides the support professional with screen and input device access to the support recipient’s computer. The support recipient exercises control over the software to the extent that logging on and off of the session involves. The support professional exercises control over the software and data that is resident on the support recipient’s computer.
The Remote Support Corporate Software also provides internal collaboration and management tools for use within the technical support organization or department. The software allows multiple support professionals to be added to a single support session and provides for electronic chat among those professionals for the purposes of collaboration or training (the software does not provide voice communication, which would require a separate telephone call). The software also allows the support organization or department to record support sessions for evaluation or training purposes, and allows authorized personnel within the support organization or department to monitor support sessions for evaluation or training purposes.
3. ****** (“On-line Conferencing”)
******. On-line Conferencing provides software hosted and controlled on-line by the service provider. Web conferencing, offered through On-line Conferencing, includes some form of remote screen sharing (analogous to a computer screen projection at an in-person conference) and may also include; keyboard control over one or more applications for remote attendees; voice participation using a microphone and speakers attached to the computer or a conference bridge (described below); electronic chat/Q &A; online video; audience feedback via electronic “raised hands” and online polls or surveys; and/or recording of the conference, with or without audio. An On-line Conferencing organizer may choose to provide voice conferencing using computer-to-computer (microphone and speakers) service or dial-up service. Although a conference may involve both voice/video conferencing and screen sharing, no portion of the subscription fee paid by On-line Conferencing customers is attributable to voice or video conferencing. Microphone and speakers conferencing between participants’ Internet-connected computers is offered free of charge, as is customary in the industry. Dial-up conferencing, although integrated with On-line Conferencing, is paid for separately. Company is not seeking a ruling with respect to either direct or indirect charges for dial-up conferencing.
Subscription fees are charged on a monthly or annual basis, ****** based on the number of attendees permitted at each conference. Subscription fees are paid by the On-line Conferencing organizer and entitle the organizer to hold an unlimited number of conferences during the subscription period. Web conferences are initiated by the On-line Conferencing organizer, using a web browser or by directly accessing an applet that is installed on the organizer’s computer. The organizer can invite participants using telephone, email, instant message or other means. Each conference participant is connected via the Internet to Company’s dedicated servers and data centers; those connections are mediated and controlled by On-line Conferencing Software that is stored, executed, maintained, updated and controlled on servers owned or leased by the Company. All of the content and information shared using On-line Conferencing is provided by the customer and the customer’s invitees to the web conference. On-line Conferencing organizers using the ****** and ****** services can also create customized registration pages (hosted by Company) for their conferences, add co-presenters (panelists) to a conference, conduct polls and surveys ******, provide access to training materials, tests, evaluations and reports before and after a conference ****** and charge for access to a conference. Materials, polls, surveys, and other data are created or uploaded by the organizer on Company servers and stored securely.
1) Whether Massachusetts customers’ purchases of Company’s offering called “Remote Access,” are subject to the Massachusetts sales and use tax.
2) Whether Massachusetts customers’ purchases of Company’s offering called “Remote Support,” are subject to the Massachusetts sales and use tax.
3) Whether Massachusetts customers’ purchases of Company’s offering called “On-line Conferencing,” are subject to the Massachusetts sales and use tax.
Based on the facts that have been presented, the Department rules that each of the components described above, sold or bundled with one or more of the others, is subject to Massachusetts sales or use tax for the reasons discussed below.
IV. LAW AND ANALYSIS
Massachusetts imposes a 6.25% sales tax on sales of tangible personal property and telecommunication services within the Commonwealth, including sales of prewritten (also called “canned” or “standardized”) software regardless of the method of delivery. The rules relating to tax on computer hardware and software are contained in the Computer Industry Services and Products Regulation, 830 CMR 64H.1.3. Section (3) provides the following:
(3) General Rules.
(a) Sales Tax. Sales in Massachusetts of computer hardware, computer equipment, and prewritten computer software, regardless of the method of delivery, and reports of standard information in tangible form are generally subject to the Massachusetts sales tax. Taxable transfers of prewritten software include sales effected in any of the following ways regardless of the method of delivery, including electronic delivery or load and leave: licenses and leases, transfers of rights to use software installed on a remote server, upgrades, and license upgrades. The vendor collects sales tax from the purchaser and pays the sales tax to the Commissioner.
Charges for prewritten software, whether it is electronically downloaded to the customer or accessed by the customer on the seller’s server (including the “Software as a Service” business model) are generally taxable. The marketing description of a product as “software-as-a-service” does not determine taxability of that product, nor does the fact that customers do not download software or otherwise install software on their own computers or other devices.
The sale, license, lease or other transfer of a right to use software on a server hosted by the taxpayer or a third party, as described in 830 CMR 64H.1.3(3)(a), is generally taxable under Massachusetts sales and use tax law. However, where there is no separate charge for the use of the software and the object of the transaction is acquiring a good or service other than the use of the software, sales or use tax on software generally does not apply. See 830 CMR 64H.1.3(14)(a); LR 10-1. Also see, e.g., LR 12-5 in which the object of the transaction was substantial personal and professional services provided to doctors’ offices bundled with the use of software.
Telecommunications services are broadly defined in G.L. c. 64H, § 1, and 830 CMR 64H.1.6, as any transmission of messages or information by electronic or similar means, between or among points by wire, cable, fiber‑optics, laser, microwave, radio, satellite, or similar facilities, but not including cable television. St. 1990, c. 121, § 42. In general, telecommunications include telephone and other transmissions between or among specific parties or specific locations, but do not include public broadcasts. Teleconferencing services, including a conference bridging service that links two or more participants of an audio or video conference call and may include the provision of a telephone number are taxable telecommunications services. TIR 05-8, Section VII. A. 7. A seller of telecommunications services may give a resale certificate for services purchased from other vendors under the rules in 830 CMR 64H.1.6(6). You have asked the Department not to rule on separately stated charges for telecommunications services, such as dial-up conferencing, and accordingly this ruling only discusses charges for access to prewritten software. Having concluded that Company’s offerings are taxable as sales of prewritten software, we note but do not further discuss that one or more of the offerings may also be taxable as telecommunications services.
The Commissioner applies these general rules to the facts describing the three types of products sold by Company as follows:
1. ****** (“Remote Access”):
The customer uses the Remote Access offering by logging on to Company’s server using a web browser or handheld application. The Remote Access Software then creates secure connections between the customer’s remote location and Company’s servers, and between the Company servers and the host computer. Company argues that in doing so it provides an on-line service to its customers and that the customers exercise no control over Company’s software or hardware other than initiating and terminating the connection. Company states that the Remote Access Software is stored, executed, maintained, updated and controlled on servers owned or leased by Company and that Company provides a service that specifically deploys, switches, routes, and provides the server and backup systems that are necessary to run the software.
We agree that the Remote Access Software creates and maintains the secure connections necessary for Remote Access and creates the functionality described above for the subscriber. However, the software is operating as it was designed and programmed to operate by Company. Customers access the Remote Access Software through their own computer and use the automated processes that result from the Remote Access Software that resides on the Company’s server. There is little or no direct involvement by Company’s employees in the operation of Remote Access.
Company argues that the customer is not using the Remote Access Software, but rather Company is using its own software in providing services to its customers. In addition, Company maintains a Technical Operations Team of approximately 130 employees worldwide who are responsible for maintaining the network and controlling it. Finally Company argues that customers are not paying for the ability to use Remote Access Software but are paying for a service of sharing input control and screen data between local and remote machines for the purposes of Remote Access, technical support or online presentations, as the case may be.
Company compares the Remote Access offered through Remote Access Software to the job-matching services addressed in LR 11-4 and to the authentication services considered by the Department in LR 11-3, both determined to be nontaxable. However, in LR 11-4, the Department ruled that the object of the transaction was to obtain database access, including reports prepared by the taxpayer, rather than the use of the software itself. This was because the taxpayer provided information services to its customers based on data it gathered from prospective employees and then provided this information in a report to the customer that was not furnished to others. See 830 CMR 64H.1.3(8)(b). Also, the services provided in LR 11-4 did not involve the transfer of a right or license to use software on a server hosted by the taxpayer or a third party. In the present case, the Company is transferring a right to use the software on a server hosted by the Company to allow the customer to perform certain tasks. In LR 11-3, where the taxpayer generated digital certificates used for authentication of its customers’ websites, the Department concluded that the object of the transaction was the transfer of digital certificates, not the use of the taxpayer’s software. In that ruling, although the taxpayer’s customers accessed the software for registration purposes, the customers were unable to “use” the taxpayer’s software on its server as the Company’s purchasers of Remote Access Software do. In addition, the object of the transaction was for the taxpayer to authenticate the identity of the customer, its related website and business, and the information presented by the customer during the registration process. Once the taxpayer authenticated the identity of a customer, a digital certificate was electronically sent to the customer. The digital certificate did not contain any pre-written computer software. Moreover, the authentication process was the true object of the transaction and it is technically a service.
Finally, the Company argues that the customer does not have access to the Remote Access Software. However, it states that the customer uses their remote device, either desktop or handheld, to access and utilize the software and data that are located on the host computer. The customer initiates and terminates a connection, and also identifies, selects and manipulates the desired tools that are available through use of the software that is hosted on Company’s server. All other aspects of the connection are a function of the Remote Access Software itself. Any maintenance of the software and network control and monitoring performed by Company is simply ordinary and necessary overhead that is involved in maintaining a network of servers, storage, database and connections. Accordingly, we rule that any services provided by Company with respect to Remote Access Software are inconsequential.
2. ****** (“Remote Support”):
As described in the Statement of Facts, the customer (a support professional) logs onto the Remote Support service using a web browser or an applet resident on the support professional’s computer. The Remote Support Software provides the support professional with a session identifier that the professional communicates to the support recipient using the professional’s own e-mail, telephone or other means. The support recipient logs on to the support session over the Internet using a web browser and the session identifier. The Remote Support Software creates secure connections between the support recipient’s computer and the Company servers, and between the company servers and the support professional’s computer. Company personnel are not involved in these communications whatsoever. The support professional is either a third party or in most instances a computer technician employed by the same company as the support recipient. Company’s employees do not provide a technical support service, rather Company provides its customers with software that enables the customer to more efficiently troubleshoot computer hardware and software problems through Remote Access.
Company argues that neither the support professional nor the support recipient exercises any control over Company’s software or hardware other than initiating and terminating the session. However, the support professional is able to access applications and data stored on the support recipient’s computer, as well as diagnostic information concerning the computer that is automatically gathered by Remote Support Software. Company believes that the object of the transaction is to facilitate secure on-line technical support sessions between technical support personnel and support recipients and that this is a nontaxable service.
We do not agree. Although the Company uses its own software to make such connections available, the true object is to provide support professionals software through which they can access a support recipient’s computer from a remote location and troubleshoot the relevant support issue. We rule that the object of the transaction in purchasing the Remote Support offering is the use of prewritten software, and any personal or professional service provided by Company is inconsequential.
3. ****** (“On-line Conferencing”):
As in the case of Remote Access and Remote Support, On-line Conferencing involves software stored, executed, maintained, updated and controlled on servers owned or leased by Company that creates and maintains the secure connections necessary for on-line conferencing. The On-line Conferencing organizer can perform actions or make choices with respect to the conference such as; beginning and ending the conference, recording it, choosing which applications are included in screen sharing, choosing whether voice participation will take place over a dial-up connection or using microphone and speakers, and in the case of ****** and ******, designating co-presenters, conducting polls and surveys and providing access to training materials, tests, evaluations and reports. In addition, On-line Conferencing Software requires that applets be downloaded and stored locally on the computers of each conference host and participant.
Company argues that the object of the transaction between itself and its customer is not the use of the software or the transfer of property, but the provision of a service of on-line conferencing made available to On-line Conferencing organizers and participants. However, we conclude that Company is selling access to prewritten software that operates based on prompts and choices made directly and exclusively by the On-line Conferencing organizer and that no personal or professional services are provided by Company to facilitate the on-line conferencing unless the customer seeks technical support from a customer service center. Once a connection is made, customers or On-line Conferencing organizers independently navigate through Company’s software and select and utilize any of the various tools, such as power-point, spread sheets or tables provided by the software. The On-line Conferencing organizer then organizes and displays information that has been entered or uploaded on the computer, or transferred from the On-line Conferencing organizer’s or a participant’s desktop, and displays that information or makes it accessible to all On-line Conferencing participants.
Yet, Company maintains that with respect to all three offerings, the customer has no control over the basic functionality of the software. We do not agree. The customer must interact with the software in order to reach an objective. The customer does so by navigating, choosing and using tools made available through the software. Moreover, if not for the customer’s use of Company’s software, the customer’s objective would not be met, i.e., a home computer could not be accessed from a remote location, a support technician could not access a customer’s computer from a remote location, and an on-line conference or meeting could not be held.
Company also believes that the sales of its product should be characterized as a service in part because the Company employs hundreds of people worldwide to maintain software and hardware on which it operates, including monitoring servers for malfunctions or power outages and addressing issues with how the software is running, as well as technical assistance to customers who are having difficulty using the product for which they have subscribed. In determining the object of the transaction, the Department generally looks to the customer’s experience in using the product, not to the technical operations that take place “behind-the-scenes” in a data center.
The Commissioner will consider all the facts and circumstances when determining whether a product is a personal or professional service or a sale of the right to use pre-written software. In certain instances both services and the right to use software may be integrated or bundled in one transaction. In that case, the Commissioner looks to an “object of the transaction” test to determine taxability. Here, we rule that based on the facts that have been presented, each of the Company’s three offerings described above, Remote Access, Remote Support and On-line Conferencing are subject to Massachusetts sales tax.
We further conclude that although the Company may provide some personal and professional services to its customers in connection with each of the three offerings, such services are inconsequential, and the object of the transaction is the use of software in each case. Moreover, with respect to each of the three offerings, the customer’s involvement with and use of Company’s software is essential to meeting the customer’s objectives.
In determining the object of the transaction, the Department generally looks to the customer’s experience in using the product rather than the “behind-the-scenes” operations where the software is accessed on a seller’s server. We note that each offering discussed in this ruling is designed so that the customer accesses and uses the prewritten software with little or no interaction with Company’s employees, and that no analysis, content or data is provided to the customer by Company beyond the functionality of the software itself. Accordingly, we rule that upon payment of the subscription fee for any one of Company’s three offerings described above, the customer is purchasing the right to use the Company’s software and the tools provided therewith, and such purchases are subject to the sales tax when sold to customers located in Massachusetts.
Very truly yours,
Commissioner of Revenue