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New Massachusetts Computer and Software Tax Repealed

On September 27, 2013, Massachusetts Governor Deval Patrick signed legislation that repealed the imposition of the 6.25% sales and use tax on computer and software services that was originally effective July 31, 2013.  This is an amazing turnaround from just a few months ago when the Governor vetoed the bill to implement the tax on computer services.  Both the Massachusetts Senate and House of Representatives voted on July 25, 2013 to override the Governor’s veto, enacting the law effective July 31, 2013.  The new tax was to be imposed on computer system design services and the modification, integration, or configuration of standard software.  Computer system design services means the planning, consulting, or designing of computer systems that integrate computer hardware, software, or communication technologies and are provided by a vendor or a third party.  The new tax did not apply to data access, data processing, or information management services.

After the veto override, the business community realized the impact of the new tax law and raised a loud outcry which created an immediate reaction in the legislature.  In anticipation of repeal, the Department of Revenue (DOR) initially extended the September 20 filing/payment date for taxes collected July 31 through August 31 to the October 20 filing date.

Now with the repeal, the DOR has issued Technical Information Release 13-17 explaining what vendors need to do to return the tax to their customers if they had already collected and remitted the tax to the state or if they collected the tax but did not yet remit.

Finally, the DOR stated that “longstanding statutory and regulatory rules regarding sales and use tax on standardized or prewritten software and on computer hardware remain in effect.”  Also, the DOR stated that it will issue additional guidance to clarify when a transaction is a taxable sale of standardized or prewritten software and a non-taxable service.

 

Gary Bingel's expertise focuses on state and local income taxation, and sales and use tax consulting. He has significant experience serving clients in the manufacturing, retail, pharmaceutical, biotechnology, technology and service industries.

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