The published Findings of Fact and Report should finally bring to an end the ATB's long-running consideration of this case, which involved refund claims for tax paid on software purchased by a Massachusetts-based business (Hologic) from three different vendors. In each of the claims, the vendor (on behalf of Hologic) was seeking a refund of sales tax on sales of software to Hologic, based on the application of the Commonwealth's multiple points of use sourcing rules.
Each of the claims involved software downloaded onto a Hologic server located in Massachusetts, but used by Hologic employees located outside of Massachusetts. In each case, the vendor claimed refunds based on the percentage of Hologic users located outside of Massachusetts.
The Department denied the refund claims based on a narrow interpretation of its regulation—830 CMR 64H.1.3(15)(a). Under the Department's view, although Massachusetts has a multiple points of use sourcing rule, the rule was only available to purchasers that provided an exemption certificate to the vendor prior to the date that the tax was remitted to the Commonwealth. The ATB initially decided the case in 2017 and upheld the Department's denial of the refund claims.1 A copy of our alert on the 2017 ATB decision can be found on reedsmith.com.
However, in March 2019, the ATB, reconsidered and reversed its 2017 decision on its own motion.2 In the new order (a Rule 33 order), the ATB noted that, although there is a regulation requiring a purchaser of software to provide the vendor with a multiple points of use exemption certificate prior to the date the vendor remits the sales tax, that regulation also contains provisions that would permit the use of multiple points of use apportionment when no exemption certificate has been provided.3 The ATB also noted that there is no statutory or regulatory provision specifically barring a refund claim if multiple points of use data is provided to the vendor after remittance of the tax. As a result, the ATB held that the vendors were eligible to apportion the purchase price based on the user location data provided by Hologic and claim a refund, even though no exemption certificate had been provided by Hologic prior to the remittance of the tax. A copy of our alert discussing the ATB's Rule 33 order can be found on reedsmith.com.
Following the Rule 33 order, the Commonwealth quickly filed an application requesting that the ATB reconsider its new decision, and the taxpayers filed an opposition to the request for reconsideration. After a hearing on reconsideration, the ATB directed the parties to submit additional information in support of their positions. Finally, after additional submissions by both sides, the ATB denied the Department's motion for reconsideration and published its Findings of Fact and Report in support of its Rule 33 order.4
In the Findings of Fact and Report, the ATB concluded that the Department's position requiring the provision of an exemption certificate prior to the remittance of the tax did not supersede the application for abatement process that entitles vendors to claim refunds of sales tax paid on behalf of their customers. In support of this finding, the ATB referenced other regulatory provisions that expressly prohibit taxpayers from seeking abatement in certain circumstances. In addition, the ATB noted that the regulation relied upon by the Department was specifically designed to apply to periods before its promulgation date. This undercut the Department's position that apportioning charges for software based on usage was not possible following the remittance of the tax. In addition, the ATB found the Department's position contrary to Massachusetts' general policy allowing abatement of sales tax paid in the absence of an exemption certificate.
The Department may appeal the ATB's decision to the Court of Appeals. In the meantime, the publication of the Findings of Fact and Report confirms that businesses that have paid Massachusetts sales tax on the full purchase price for software used, in part, outside of Massachusetts may have a refund opportunity. Such businesses should consider working with their software vendors to file protective refund claims.
- Oracle USA, Inc. et al. v. Commissioner of Revenue, ATB Docket Nos. C318441, C318442, and C327798 (May 22, 2017), rev’d ATB Rule 33 Order March 25, 2019.
- Oracle USA, Inc. et al. v. Commissioner of Revenue, ATB Docket Nos. C318441, C318442, and C327798 (March 25, 2019) (ATB Rule 33 Order).
- 830 CMR 64H.1.3(15)(b).
- Oracle USA, Inc. et al. v. Commissioner of Revenue, Findings of Fact and Report, ATB Docket Nos. C318441, C318442, and C327798 (Nov. 27, 2019).
Client Alert 2019-281
