Massachusetts Explains Application of Multiple Points of Use Exemption for Software Transactions

January 29, 2020

For businesses that purchase software that will be used concurrently by users in multiple states, sales tax rules may allow the purchaser to provide the seller documentation that certifies the percentage of usage in each state, which could minimize the purchaser’s sales and use tax liability.

By Jess Johannesen, SALT Manager

State tax laws have always struggled to keep pace with evolving industries, and this lag is most apparent with the evolution of technology and software.  One particularly complex issue is how a seller should source sales of software that may be delivered to one location but that is used concurrently in multiple jurisdictions.  While many states are silent on this issue, there are a few that allow a purchaser to provide documentation to the seller that may relieve the seller of its obligation to collect and remit tax on the entire transaction or that permit the seller to collect and remit only the apportioned amount of use in the state.  A recent Massachusetts Appellate Tax Board opinion explained the state’s version of this rule, referred to as a Multiple Points of Use (“MPU”) exemption and the two scenarios in which the exemption may be applied.[1]

In the case, Oracle USA, Inc., Oracle America, Inc., and Microsoft Licensing, GP (collectively, the “Licensors”) licensed computer software to Hologic, Inc. (the “Company”).  The Company was headquartered in Massachusetts with employees and offices both inside and outside the state.  The Company developed and manufactured medical diagnostic equipment, and the Company’s information technology procurement function was in Massachusetts.  This IT procurement function served all the Company’s locations.

When the Company purchased the software license from the Licensors, the software was installed on servers located in Massachusetts for use by employees at the Company’s offices around the country and the world.  The Licensors charged and collected Massachusetts sales tax on the full price of the software license.  The Company later informed the Licensors of the intended and actual use of the software in multiple locations, and the Company provided data to the Licensors to support the percentage of use outside Massachusetts.  The Licensors then filed amended returns to reflect the Massachusetts usage, and requested the right to use this apportionment pursuant to the state’s abatement process.

Massachusetts regulations include two primary apportionment provisions for sales of software.[2]  The first provision applies when a purchaser knows at the time of its purchase that the software will be concurrently available for use in more than one jurisdiction.  In such case, the purchaser provides a Form ST-12 (Exempt Use Certificate) to the vendor no later than the time the transaction is reported for sales/use tax purposes.  Use of this form relieves the seller from collecting any Massachusetts tax and puts the obligation on the purchaser to remit the apportioned use tax to the state.

The second provision applies when a seller knows that the software will be concurrently available for use in more than one jurisdiction, but the seller has not been provided a Form ST-12 by the purchaser.  In such case, the seller, “may work with the purchaser to produce the correct apportionment,” that the purchaser must certify.  Based on that certified documentation accepted by the seller, the seller then remits the appropriate amount of apportioned sales tax to the state.

Both provisions allow use of, “any reasonable, but consistent and uniform, method of apportionment that is supported by . . . records as they exist at the time the transaction is reported for sales or use tax purposes.”  The regulation goes on to explain that a reasonable, but consistent and uniform, method of apportionment includes, but it not limited to, methods based on the number of computer terminals or licensed users in each jurisdiction where the software will be used.  Specifically, such apportionment method may not be based on the location of the servers where the software is installed.

Interestingly, in this case, the purchaser did not provide the ST-12 under the first method nor certify to the usage under the second method.  Thus, the Licensors requested relief under the state’s abatement process, which states: “[a]ny person aggrieved by the assessment of a tax, [except certain estate and gift taxes], may apply in writing to the commissioner, on a form approved by the commissioner, for the abatement thereof.”[3]

The commissioner argued that the Licensor’s were not entitled to use this process since the two MPU exemption provisions provided the requested relief, and the parties failed to comply with those rules.  The Board disagreed and ruled that the two MPU exemption provisions were not intended to be the exclusive methods through which relief might be granted.   Accordingly, the Licensors’ abatement request was approved and they were refunded the portion of tax previously collected and remitted that represented the percentage of the Company’s users outside of Massachusetts.  As required, those amounts were then remitted to the Company.

If your company is buying or selling software licenses that may be used simultaneously by users in different jurisdictions, are you addressing the proper sourcing and apportionment of sales tax that may be allowed by certain states?  Aprio’s SALT team has experience with these types of MPU exemptions, and we can assist to ensure that you are not paying more sales/use tax than is required.   We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Jess Johannesen, SALT manager, at or Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at for more information.

This article was featured in the January 2020 SALT Newsletter.

[1] Oracle USA, Inc., Oracle America, Inc., Microsoft Licensing, GP v. Commissioner of Revenue, Mass. App. Tax Bd., C318441, C318442, C327798, 11/27/2019.

[2] 830 CMR §64H.1.3(15)

[3] Mass. G.L. ch. 62C, §37.

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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