In a significant win for taxpayers, the Massachusetts Supreme Judicial Court affirmed a ruling in favor of Microsoft and Oracle, holding that the companies may apportion sales tax on software purchased for use in multiple states.
In a significant win for taxpayers, the Massachusetts Supreme Judicial Court affirmed a ruling by the Massachusetts Tax Appeal Board in favor of Microsoft and Oracle, holding that the companies may apportion sales tax on software purchased for use in multiple states.
Generally, sales and use taxes do not get apportioned amongst several jurisdictions as law and practice has developed different methodologies for software. Some states formalized the process with Multiple Points of Use exemption certificates (e.g., Massachusetts, and Minnesota). Other states accepted apportionment based on alternative evidence, such as a letter from the customer with use percentages (e.g., New York).
Massachusetts, however, requires that the exemption form (Form ST-12) be provided at the time of sale. If the form is not provided, the full amount of the software purchased in Massachusetts should be subject to Massachusetts sales tax. The court’s decision allows taxpayers to repair a potentially un-apportionable transaction during the abatement process (refund claim).
The Takeaway
Taxpayers that may have collected and remitted the full amount of Massachusetts sales tax on software used in multiple states may be able to file a refund claim for the portion of sales tax related to software used outside of the state.
Also, it will be interesting to see if the “other states” to which the sales tax is purportedly apportioned to begin attempting to collect the use tax that they are due. Reach out to Alexander Korzhen at akorzhen@taxops.com or a member of the TaxOps team with any questions.
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