Last year, the Massachusetts Supreme Judicial Court (SJC) ruled that taxpayers have a statutory right to apportion sales and use tax on software used in more than one state and that the general abatement process of G.L. c. 62C, Section 37 was available for refunds based on that apportionment. On May 19, 2022, the Department of Revenue issued Technical Information Release (TIR) 22-8 to provide guidance on the application of this decision.
Background
In the Oracle1 decision, the taxpayer sold software to Hologic, Inc., a medical device company headquartered in Massachusetts. Massachusetts sales tax was collected and remitted on the full sales price of the software at the time of the sale, and the software was installed on Hologic’s servers at the company headquarters. After the purchase, Hologic notified Oracle that the software was accessed and used by employees both inside and outside of Massachusetts and requested a partial refund of sales tax paid based on the employees’ use outside of the state. The appropriate abatement applications were filed under the provisions of Chapter 62C Section 37, using an apportionment percentage based on the number of Hologic employees using the software in Massachusetts as a percentage of the total Hologic employees using the software everywhere. When the Commissioner denied the abatement, the taxpayer appealed to the Appellate Tax Board (ATB). The denial was based on the premise that the purchaser of the software did not follow the correct apportionment process as specified in regulation 830 CMR 64H.1.3(15). The ATB ruled in favor of the taxpayer, affirming the use of the apportionment process in the statute, and the SJC agreed with that decision.
Implications
The TIR confirms that the department will follow the ruling and allow taxpayers to establish the correct apportionment through the abatement process provided in the regulations and receive refunds of sales and use tax paid on multistate use of software. While stating that the apportionment process determined in the regulations is appropriate, the department is not ruling out the use of other reasonable methods, depending on the case. The burden of proof is on the taxpayer, which will require substantiating documentation for the method used in the apportionment calculation.
Next Steps
Taxpayers who have collected and remitted sales tax on the sale of multistate use software, should consider filing abatement claims with the department within the appropriate three-year statute of limitations. Contact a Ryan tax professional below for assistance with your abatement claim.
1Oracle USA, Inc. v. Commissioner of Revenue, 487 Mass. 518 (2021).
TECHNICAL INFORMATION CONTACTS:
Brian Stromen
Principal
Ryan
763.445.4200
brian.stromen@ryan.com
Garrett Blackwood
Director
Ryan
617.892.4893
garrett.blackwood@ryan.com
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