Despite the recent repeal of the Massachusetts computer software and services tax (
http://www.mass.gov/dor/businesses/help-and-resources/legal-library/tirs/tirs-by-years/2013-releases/tir-13-17.html), the applicability of the Massachusetts sales and use tax to computer software transaction remains an area of concern. On November 8, 2013, the Massachusetts Department of Revenue revised and reissued Letter Ruling 12-8 (
http://www.mass.gov/dor/businesses/help-and-resources/legal-library/letter-rulings/letter-rulings-by-years/2012-rulings/lr-12-8.html), which letter ruling sets forth DOR's position regarding the applicability of the Massachusetts sales and use tax to cloud computing services. In the ruling, the customers of Company, through Company's cloud computing products, are able to access computing resources and storage capacity through the Internet without a significant capital outlay for the purchase of hardware or operating system software. Customers do need some operating system software to access the cloud computing products. Customers may utilize (i) their own operating system software, (ii) open source software, or (iii) designated third party operating system software that Company has licensed from a third party. Company charges higher prices for cloud computing services for a customer using the third party software option.
Under these facts DOR ruled that (i) sales of cloud cumputing services are not subject to Massachusetts sales or use tax under any of the three scenarios discussed above, and (ii) sales of remote storage service to Massachusetts customers are not subject to Massachusetts sales or use tax. Before being revised, Letter Ruling 12-8 stated that the third party licensed software option subjected the transaction to Massachusetts sales or use taxation.
Although Letter Ruling 12-8 as revised provides welcome relief for taxpayers using the third party licensed software option, it should be noted that DOR states the following in the course of its analysis: "Company is liable for use tax on the apportioned cost of prewritten operating systems software that it consumes in the provision of nontaxable services to customers in Massachusetts."