Massachusetts sales tax refund opportunity for multiple points-of-use software purchases

On May 19, 2022, the Massachusetts Department of Revenue issued a Technical Information Release, TIR 22-8 which results from the Massachusetts Supreme Judicial Court’s (“Mass SJC”) decision held in Oracle USA, Inc. v. Commissioner of Revenue, 487 Mass 518, 163 NE3d 349 (2021). The TIR provides guidance with regards to seeking abatements (refunds) of sales tax paid for software purchases used in Massachusetts and multiple states when allocation certification is not presented at time of purchase.

Background Facts

Taxpayers Oracle USA, Inc., Oracle America, Inc. and Microsoft Licensing, GP (collectively “the taxpayers”) sold software to Hologic, Inc. (“Hologic”). At the time of purchase, Hologic paid the Massachusetts sales tax due based on the full selling price of the software. The software was subsequently installed on Hologic’s server located in Massachusetts. Hologic then notified the taxpayers the software was also being used by employees located outside of Massachusetts and requested a refund for the portion of sales tax paid for the software that was being used outside of the state. As a courtesy to Hologic, the taxpayers filed abatement applications pursuant to the provision set forth in G.L. c. 62, § 37 requesting a refund of sales tax for the portion of tax that was not attributable to Massachusetts. The Commissioner denied the abatement requests because Hologic did not provide an exemption certificate claiming multiple points of use to the taxpayers in a timely manner.

The taxpayers appealed to the Massachusetts Appellate Tax Board (“ATB”). On Nov. 27, 2019, the ATB ruled that the taxpayers were entitled to the abatement of sales tax paid for software not being used in Massachusetts. On May 21, 2021, the Mass SJC reviewed the matter and upheld the ATB’s decision allowing for a refund of sales tax paid even when a proper certificate is not provided at the time of purchase. Note that the Mass SJC did not review or approve any specific apportionment methodology; rather, the final decision was ultimately on the apportionment percentages stipulated to by both parties.

What does this mean? 

Taxpayers who purchase software and pay Massachusetts sales tax on the full selling price, but who do not provide the requisite apportionment certification at time of purchase, may still be able to apply for an abatement (refund) of sales tax paid that is attributable to users outside of Massachusetts provided that the taxpayer submit all documentation with their abatement claim substantiating the apportioned use in other states.

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