Reed Smith Client Alerts

The Massachusetts Appellate Tax Board ("ATB") published Findings of Fact and Report upholding a prior decision that allowed a taxpayer to claim a refund for sales tax paid on software downloaded onto servers located in Massachusetts, but used outside of Massachusetts. The published report confirms that businesses that paid Massachusetts sales tax on software used outside the Commonwealth have a refund opportunity and should consider working with their software vendors to file protective refund claims.

Authors: Michael A. Jacobs Brent K. Beissel Sebastian C. Watt

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.