Nonprofit 411: Computer and Software Services Now Subject to Sales and Use Tax

By Jeff Warfield and Rich Weiner, Alexander, Aronson, Finning & Co.

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The Massachusetts legislature, as part of the new fiscal year, passed a transportation funding bill that newly subjects Computer and Software services to sales and use tax.  The time lag between the law’s passage and effective date was minimal; it was enacted in mid-July with an effective date of July 31, 2013.  Invoices reflecting taxable services performed on or after this date must include the tax assessment.

On July 25, 2013, the Massachusetts Department of Revenue issued Technical Information Release 13-10 to provide initial guidance, pending issuance of regulations.  Highlights of the law and ruling include the following:

  • The definition of “Computer system design services”
  • Inclusion of “modification, integration, enhancement, installation or configuration of standardized software” as a taxable service
  • Confirmation that certain ancillary computer services, such as the evaluation of existing systems or training, will not be subject to the new tax.
  • Guidance on how to identify sales to Massachusetts customers when the end users are located both in- and outside the Commonwealth.
  • A reminder that purchases of such services by Massachusetts customers from out-of-state vendors will be subject to use tax.

Click here to read an FAQ, which was recently issued by the Massachusetts Department of Revenue, for additional clarification on this issue.

The forthcoming regulations will provide greater detail and clarification to these provisions.  If you have any questions on the impact of this law to your business, please contact our office.