Almost two years ago, we reported on a decision by the Massachusetts Appellate Tax Board (“ATB”) in several appeals involving the sourcing of software purchases under Massachusetts multiple points of use sourcing rules (for more information read our 2017 client alert).That determination upheld the Department’s denial of several refund claims for Massachusetts sales tax paid on software that was used outside of Massachusetts. The taxpayers (vendors filing claims on behalf of their customers) sold software that was downloaded onto servers located in Massachusetts, but alleged that a significant percentage of the software’s users were located outside of Massachusetts. The taxpayers claimed refunds based on the percentage of the users located outside of Massachusetts. Citing regulation 830 CMR 64H.1.3(15)(a), the Department denied the refund claims based on a procedural trap for the unwary - while Massachusetts has a multiple points of use sourcing rule, the Department argued that any purchaser that did not provide an exemption certificate prior to the date the vendor remitted the sales tax to the Commonwealth could not claim a refund. While this rule was contrary to typical Massachusetts policy regarding exemption certificates, the ATB initially issued an order finding for the Department.1
But in surprising and unusual twist, the ATB has now - on its own motion - reconsidered and reversed that determination. The ATB’s new order vacates its original order in favor of the Department and now finds for the taxpayer.2 The ATB reasons that the Department is correct, there is a regulation requiring that a purchaser provide a multiple points of use exemption certificate prior to the date the vendor remits sales tax on the purchase to the Commonwealth. But the ATB correctly notes that the regulation contains additional provisions that permit multiple points of use apportionment, even if the purchaser does not provide an exemption certificate at the time of purchase or before the vendor remits sales tax on the sale.3 The ATB goes on to reason that there is no statutory or regulatory provision specifically barring a refund claim if multiple points of use information is provided at a later date. As a result, the ATB issued an order stating that the software purchasers are eligible to apportion the purchase price based on user location and claim a refund - even though no exemption certificate was provided.