AED Newsletter Header - Jan13

Massachusetts to Tax
Computer Software and Services

Last week, we brought you breaking news about MA legislature's decision to enact a measure that extends the state's 6.25% sales tax to computer software and services. This week, we bring you additional insights on this new tax that goes into effect on July 31, 2013.

 

Overview of Sales & Use Tax Law Change

Under current law, the only services subject to the sales and use tax are the provision of telecommunication services. In addition, the retail sale of standardized computer software, irrespective of how it is delivered, is subject to sales and use tax while the sale of custom software is not subject to the tax.

 

Effective July 31, 2013, the provision of computer design services is subject to sales and use tax. Computer design services are defined as the planning, consulting, or designing of computer systems that integrate computer hardware, software, or communication technologies, and are provided by a vendor or a third party. In addition, the definition of taxable services is expanded to include not only computer design services but also "the modification, integration, enhancement, installation, or configuration of standardized software."

 

With respect to tax on software modification services, the new provisions serve as overlapping descriptions generally intending to tax software services that modify, enable, or adapt prewritten software to meet the business or technical requirements of a particular purchaser and to operate on the purchaser's computer systems, regardless of how those services are described or billed to the customer. Tax will not apply to personal or professional services that do not themselves constitute computer system design services or software modification services and that are not directly related to a particular system's integration project involving the sale of computer hardware or software. Examples of nontaxable services may include consulting and evaluation services with respect to existing computer systems to identify deficiencies and needs, and services to prepare a business to use modified software, such as training.

 

For additional information, please refer to the Massachusetts Department of Revenue's recently issued Technical Information Release 13-10: Sales and Use Tax on Computer and Software Services Law Changes Effective July 31, 2013.

 

We will continue to monitor this news sales tax and keep you informed of any changes or challenges to the law. If you have any questions, please contact Gray, Gray & Gray's Tax Department at (781) 407-0300.

 

We go beyond the numbers by delivering insight, guidance and success to our clients.

 

Gray, Gray & Gray, LLP
34 Southwest Park

Westwood, MA 02090

781.407.0300

www.gggcpas.com


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