Virtual Event Center Subject to Sales Tax in Massachusetts as the Sale of Software

Wednesday, June 12th, 2013


The Massachusetts Department of Revenue recently ruled that a company's sale of a virtual events planning platform was a taxable sale of software. Mass. Ltr. Rul. No. 13-5 (Dept. of Revenue Jun. 4, 2013).

The virtual events planning platform allows purchasers to remotely access software to create their own cloud-based event, like a virtual job fair, where users can come together in a virtual events center. Purchasers never actually receive any software, they only access and use the software remotely. The company selling the virtual events planning platform requested the ruling to find out whether its sales are subject to sales tax.

The Department determined that the object of the sale, in essence, is providing purchasers access to prewritten software on the seller's servers. Citing a sales tax regulation, the Department explained that sales of prewritten software are taxable regardless of the method of delivery and that this rule extends to "transfers of rights to use software installed on a remote server." 830 Code Mass. Regs. 64H.1.3(3)(a). Accordingly, the Department ruled the company's sales of subscriptions to the virtual events planning platform are taxable sales of prewritten software.

Furthermore, the Department discussed "Software-as-a-Service" (SaaS) in the ruling, stating that SaaS is generally taxable. The Department explained that marketing descriptions do not determine the taxability of a product. Because "transfers of rights to use software installed on a remote server" are taxable, SaaS is taxable regardless of whether the seller markets it as a service.

Finally, the Department noted two exceptions to the general rule that SaaS is taxable. First, if the true object of the transaction is a non-taxable service, and the SaaS is only incidental, the entire transaction will not be taxable. Second, if non-taxable services are sold unbundled from the SaaS (e.g., separately stated and optional), then the non-taxable portion of the charge will not be subject to tax.

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TTR has a website that companies subscribe to and use daily. This website provides a list of everything that can be bought or sold in the U.S. It provides simple answers to whether buying or selling these items is taxable (subject to a sales tax or other tax), and it provides all the legal authority to support these tax answers.

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