New in Massachusetts: Repeal of the Computer and Software Services Tax

Massachusetts recently passed, An Act Repealing the Computer and Software Services Tax (TIR 13-10), which retroactively repeals changes the sales and use tax laws applied to certain services relating to computer system design and modification, integration, enhancement, installation, or configuration of standardized or prewritten software. Those changes were to be effective July 31, 2013 and have now been repealed retroactively to that date.

Since the original law was activated and many vendors adhered to the original rules, some collections and transactions need to be unwinded. Below are some steps that may need to be addressed:

Vendors that have collected but not remitted tax:

Vendors that have collected but not remitted tax on software and computer services described in TIR 13-10 must make reasonable efforts to return that tax to the retail customers from whom the tax was collected.

Vendors that have filed returns and remitted tax:

Vendors that have collected and remitted tax on software and computer services described in TIR 13-10 must electronically file abatement applications no later than December 31, 2013 by doing the following:

1. Login to the vendor’s WebFile for Business user account
2. Select “File, Pay or Amend Returns”
3. Select “Amend a Return”
4. Click “Amend” for the period 8/31/13
5. Complete and submit the amended return
6. Print the confirmation page that results and fax it to 617-660-7247 for expedited processing

Other than the shortened statute of limitations for filing the abatement application, all other provisions of Massachusetts general laws governing abatement applications will apply, including the need to provide supporting documentation if requested by the Department. Such substantiating documentation may include sample invoices that would show that an abatement request relates solely to software and computer services transactions, as opposed to sales of standardized or prewritten software licenses or other taxable transactions. Further, no actual refund will be made until the vendor establishes that the tax has been repaid or credited to the retail customer.

Vendors that have filed returns but not remitted tax:

Vendors that have collected tax on software and computer services described in TIR 13-10, filed a return, but not remitted the tax shown due on the return to DOR must (1) make reasonable efforts to return the tax to the retail customers from whom the tax was collected and (2) electronically file abatement applications no later than December 31, 2013 in order to eliminate the self-assessment of tax by doing the following:

1. Login to the vendors WebFile for Business user account
2. Select “File, Pay or Amend Returns”
3. Select “Amend a Return”
4. Click “Amend” for the period 8/31/13
5. Complete and submit the amended return
6. Print the confirmation page that results and fax it to 617-660-7247 for expedited processing

Other than the shortened statute of limitations provided for filing the abatement application, all other provisions of MA general laws governing abatement applications will apply, including the need to provide supporting documentation if requested by the Department. If a taxpayer has filed a return showing tax due and fails to file for an abatement, billing and collection activity may result.

Sales/Use Tax on standardized or prewritten software unchanged:

Longstanding statutory and regulatory rules regarding sales and use tax on standardized or prewritten software and on computer hardware remain in effect. Sales and use taxes remain fully due and payable on tangible personal property, which is defined to include transfers of the use or access to standardized or prewritten software (whether such software or the use thereof is transferred in tangible form, electronically, or in any other manner). The Department will be issuing additional guidance in the near future on determining whether a transaction is a taxable sale of standardized or prewritten software or a non-taxable service.