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TIR 05-15: Transfers of Prewritten Computer Software

Sales and Use Tax

I. Introduction:

This Technical Information Release announces statutory changes contained in recent legislation,

St. 2005, c. 163, §§ 27, 29, 34, 59, 61, concerning sales of standardized computer software

(“prewritten software”). As the result of this change, prewritten software sold to a customer in

Massachusetts or purchased for use in Massachusetts shall be deemed a transfer of tangible

personal property subject to the sales or use tax regardless of the method of delivery, including

transfers by electronic means such as the Internet or “load and leave.” This change is effective

April 1, 2006. Prior to this statutory change, sales or use tax was imposed on sales of prewritten

software[1]

delivered in tangible form such as a disk, but not on prewritten software delivered

electronically or by “load and leave.” See 830 CMR 64H.1.3, DD 01-3 and LR 00-14.

The legislation also provides that the development and sale of prewritten software shall be

considered a manufacturing activity for purposes of certain corporate excise provisions,

regardless of the method of the delivery of the software. This may result in the applicability of

single sales factor apportionment and to eligibility for potential local property tax benefits,

investment tax credits, and certain sales tax exemptions. These changes are effective for taxable

years beginning on or after January 1, 2006.

This TIR revokes and replaces any prior public written statements to the extent they are

inconsistent.

II. Statutory Changes:

The recent legislation amends the definition of “tangible personal property” in the sales tax

statute, G.L. c. 64H, § 1, to add the following: “A transfer of standardized computer software,

including but not limited to electronic, telephonic, or similar transfer, shall also be considered a

transfer of tangible personal property. The commissioner may, by regulation, provide rules for

apportioning tax in those instances in which software is transferred for use in more than one

state.”

The legislation also amends provisions in the corporate excise statute at G.L. c. 63, §§ 38C and

42B to provide that for purposes of those sections and G.L. c. 63, § 38, “the development and

sale of standardized computer software shall be considered a manufacturing activity, without

regard to the manner of delivery of the software to the customer.”

III. New Sales/Use Tax Treatment:

All transfers of prewritten software on and after April 1, 2006, including but not limited to

electronic, telephonic, or similar transfers, downloaded software from the Internet or transfers by

“load and leave” are considered transfers of tangible personal property. Sales or use tax will

apply when such software is transferred for a consideration to a retail purchaser in

Massachusetts or for use in Massachusetts.

On and after April 1, 2006, taxable transfers of software include, but are not limited to, the

following:

1. Licenses and leases of prewritten software.

2. Granting the right to use prewritten software installed on a remote server.

Instructions For Form Tir 05-15 - Transfers Of Prewritten Computer Software Sales And Use Tax