On July 24, 2013, Massachusetts lawmakers voted to override Governor Deval Partick’s veto of the Commonwealth’s Transportation Finance Bill (“H.B. 3535”). As a result, the gas tax will increase by three cents per gallon; tax on cigarettes by one dollar per pack; and computer system design services and the modification, integration, enhancement, installation, or configuration of standardized software will now be subject to sales and use tax. The revenue generated from H.B. 3535, as appropriately entitled, is designed to aid Massachusetts’ transportation systems and projects. The gas and cigarette tax increases, and sales and use tax on computer services are effective July 31, 2013 (seven days from the enactment of H.B. 3535).
“Computer system design services” are 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. “Modification, integration, enhancement, installation, or configuration of standardized software” are viewed as services that modify, enable, or adapt pre-written 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. These services may also be described as customization services for pre-written software.
On July 25, 2013, the Massachusetts Department of Revenue released Technical Information Release 13-10 (“TIR – 13-10”), which provides guidance for the application of sales and use tax to these newly taxed computer services. This guidance includes transition rules for existing computer services contracts, sales and use tax filing requirements, and information on sourcing rules, including Multiple Points of Use. Read more