MASSACHUSETTS DEPARTMENT OF REVENUE REGULATION FACT SHEET

TITLE: 830 CMR 64H.1.3: Computer Industry Services and Products

SUMMARY OF REGULATION: This regulation explains the application of the Massachusetts sales and use taxes to computer products and software.

The new regulation reflects statutory changes contained in St. 2005, c. 163, §§ 34, 61, effective April 1, 2006, concerning sales of standardized computer software ("prewritten software"). As the result of these changes, prewritten software sold to a customer in Massachusetts or purchased for use in Massachusetts is deemed a transfer of tangible personal property subject to the sales or use tax regardless of the method of delivery, including electronic delivery or load and leave. Taxable transfers of prewritten software include sales effected in any of the following ways: licenses and leases, transfers of rights to use software installed on a remote server, upgrades and license upgrades. The new definition of prewritten software is contained in Section (2) and the general rules in Section (3) of the regulation. Transfers of custom software will generally continue to be treated as nontaxable personal service transactions.

The above legislation further provided that the Commissioner may, by regulation, provide rules for apportioning tax in those instances in which software is transferred for use in more than one state. Those rules are contained in Section (14), Multiple Points of Use Certificates.

The regulation also provides new rules for calculating tax on optional software maintenance contracts that may include maintenance services as well as upgrades, enhancements or updates of prewritten software. If the charges for the upgrades and other services are not separately stated, tax applies to 50% of the sales price of the maintenance contract. These rules are contained in Section (7) and are effective January 1, 2007.

REGULATORY HISTORY:
Regulation promulgated 12/25/87
Amended 12/19/03
New regulation promulgated 10/20/06

PREPARED BY:
Massachusetts Department of Revenue
Rulings and Regulations Bureau
100 Cambridge Street, 7 th floor
Boston, Massachusetts 02114-9566
(617) 626-3250
FAX: (617) 626-3290