There is no question that MPU apportionment is permitted in Massachusetts, when claimed at the time of sale. However, over the past few years, many taxpayers have been surprised when the Department of Revenue (the “Department”) denies sales tax refund claims claiming MPU apportionment filed by vendors on their behalf.
According to petitions filed by the vendors with the ATB, the Department denied the refund claims based on a procedural technicality. Specifically, the vendors allege that the Department did not grant sales tax refunds applying MPU apportionment because the customers did not provide the vendor with an MPU certificate or other acceptable documentation of multiple points of use before the vendor remitted the tax to Massachusetts. The Department’s position is that once the tax is remitted by the vendor, a customer loses its ability to claim MPU apportionment. While there is some support for the Department’s position in its regulation, it is our view that the Department’s position conflicts with statutory authority, as well as the Department’s own policy regarding other types of sales tax exemption certificates. (Click here to view our prior alert on the issue and how that policy contrasts with the Department’s treatment of similar exemption certificates).
Several vendors have filed appeals with the ATB, challenging the Department’s denial of MPU refund claims filed on behalf of their customers, and on May 22, 2017, the ATB issued its first order in an MPU apportionment appeal. That order upholds the Department’s denial of the vendor’s refund claims.2
Anticipated next steps: Our understanding is that the ATB has received a request to publish a full opinion detailing its basis for denying the taxpayer’s refund claims. This opinion will provide more detail regarding the ATB’s thinking and whether it upheld the denial of the refund claim on the basis that the MPU documentation was not provided prior to the remittance of tax, or some alternative theory.
In addition, there are other claims on the issue pending at the ATB and the Department’s Office of Appeals that we expect will continue working their way through the appeal process.
What you can do to protect your refund rights: We expect that litigation will continue on this issue, and that taxpayers have several strong arguments for challenging the Department’s denials of MPU apportionment. As a consequence, businesses that have purchased software and paid Massachusetts sales tax on the full purchase price should review whether that software was actually concurrently available for use in other jurisdictions. If so, they should request that the software vendor file protective refund claims on their behalf, regardless of whether they provided the vendor with an MPU certificate at the time of purchase.
In addition, businesses that have paid Massachusetts sales tax on SaaS or software hosted outside Massachusetts, and accessed by employees inside Massachusetts, should be aware that they may have additional bases for having their vendors seek a refund of Massachusetts sales tax on their behalf. These businesses should also consider requesting that their software vendor file a protective refund claim preserving these issues.
- 830 CMR 64H.1.3(15)
- See Oracle USA, Inc. et. al v. Commissioner of Revenue, Appellate Tax Board Dckt Nos. C318441, C318442, and C327798 (May 22, 2017).
Client Alert 2017-173
