Massachusetts SaaS Company Eligible for Single-Factor Apportionment as a Manufacturer

March 1, 2022

Mobile communication technology concept. Global business network.

By: Betsy Goldstein, SALT Manager

At a glance

  • The main takeaway: A ruling in Massachusetts concluded that a company’s classification as a manufacturer should not have been revoked on the basis that they sell standardized computer software to customers that is accessed through a Software-as-a-Service platform. As a result, the company saved Massachusetts income taxes through use of the state’s single sales factor apportionment rules applicable to manufacturers.
  • Assess the impact: Depending on the state your business operates in, being classified as a manufacturer may provide opportunities to realize state tax savings.
  • Take the next step: Aprio’s State and Local Tax (SALT) Team can help you classify your business and uncover opportunities to achieve tax savings.

Schedule a free consultation today to learn more!

The full story:

In some states, manufacturers can receive favorable tax treatment, such as sales or personal property tax exemptions or the ability to use alternative apportionment formulas for corporate income tax. In Massachusetts, businesses can apply for and receive classification as a manufacturer from the state annually, which makes them eligible for the investment tax credit against the corporate excise tax and requires the use of a single sales factor apportionment formula.[1] Additionally, manufacturers can receive a sales tax exemption for the purchase of certain property as well as a local property tax exemption on machinery.

Massachusetts, like many states, has defined a manufacturing corporation to be one that is “engaged, in substantial part, in transforming raw or finished physical materials by hand or machinery, and through human skill and knowledge, into a new product possessing a new name, nature and adapted to a new use.”[2] These definitions generally refer to the manufacture of tangible goods or products. However, the rules also include language that “the development and sale of standardized computer software shall be considered a manufacturing activity, without regard to the manner of the delivery of software to the customer.”[3]

On December 10, 2021, the Massachusetts Appellate Tax Board (Board) issued a decision addressing whether a company whose software is provided via a Software-as-a-Service (SaaS) model (i.e., remotely-accessed by its customers) should be classified as a manufacturer.[4] The taxpayer, Akamai Technologies, Inc. (Akamai) develops and provides software-based solutions for accelerating, managing and improving the delivery of web and media content over the internet. The software is prewritten, standardized and offers virtually the same functions and features as software provided in a tangible form or downloaded to a customer’s servers.

Akamai applied for and was granted classification as a manufacturing corporation, but the classification was subsequently revoked. The basis for the revocation was that the Commissioner determined that Akamai was a cloud computing service provider that used its developed software internally to provide services to its customers rather than a manufacturer of software for sale.

The focus of this case was not on whether Akamai developed standardized computer software, but rather whether Akamai’s revenues were derived from the sale of the software. The Appellate Tax Board ultimately determined that Akamai did sell standardized computer software to the customer which is accessed remotely via a SaaS model and therefore Akamai’s status as a manufacturing corporation should not have been revoked.

In reaching that conclusion, the Board looked to the state’s sales tax guidance regarding software, noting that the “transfer of rights to use software installed on a remote server” are subject to sales tax, and that there is no basis for interpreting the concept of “sale” any differently in this case.

Responding to the Commissioner’s argument that Akamai used the software internally to provide a service, the Board referenced a working draft of a directive addressing “Criteria for Determining Whether a Transaction is a Taxable Sale of Pre-Written Software or a Non-taxable Service.”[5] The draft included several factors that would be indicative of a taxable transfer of prewritten software, including:

  • Access to prewritten software on the seller’s (or a third party’s) server, where the customer can enter its own information, manipulate it and/or run reports, and
  • Use of software that functioned with little or no personal intervention by the seller or the seller’s employees other than “help desk” assistance for customers having difficulty using the software.

Of note, purchasers of Akamai’s software could and did set their own desired configurations and “interact[ed] with the software in order to reach an objective by navigating, choosing and using tools made available through the software.” These factors led to the Board’s conclusion that Akamai’s customers purchased standardized software, and that Akamai qualified as a manufacturer.

The bottom line

Depending on the state, the distinction between a manufacturer and a service provider, can lead to several potentially significant state tax implications. Aprio’s SALT team has experience with how states classify businesses for tax purposes, and we can help your company identify opportunities to achieve tax savings. 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 Betsy Goldstein, SALT Manager, State & Local Tax Services at or Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at for more information.

This article was featured in the February 2022 SALT Newsletter.

[1] This use of a single sales factor apportionment formula is a benefit to manufacturers since their investment in property and employees in the state does not increase their apportionment percentage.

[2] Mass. Gen. L. ch. 63 § 38(l)(1).

[3] Mass. Gen. L. ch. 63 § 42B(c).

[4] Akamai Technologies, Inc. v. Massachusetts Comm. of Rev. and Board of Assessors of The City of Cambridge, Intervenor, Dkt. Nos. C332360, C334907 and C336909 (Mass. App. Tax Bd. Dec. 10, 2021).

[5] Working Drat Directive 13-XX.  It was never finalized but can still be accessed at the state’s Department of Revenue website.


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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About the Author

Jeff Glickman

Jeff Glickman is the partner-in-charge of Aprio, LLP’s State and Local Tax (SALT) practice. He has over 18 years of SALT consulting experience, advising domestic and international companies in all industries on minimizing their multistate liabilities and risks. He puts cash back into his clients’ businesses by identifying their eligibility for and assisting them in claiming various tax credits, including jobs/investment, retraining, and film/entertainment tax credits. Jeff also maintains a multistate administrative tax dispute and negotiations practice, including obtaining private letter rulings, preparing and negotiating voluntary disclosure agreements, pursuing refund claims, and assisting clients during audits.