Yes, SaaS is taxable in Massachusetts. The Massachusetts Department of Revenue's regulation on computer industry services and products, 830 CMR 64H.1.3, lists "transfers of rights to use software installed on a remote server" among taxable transfers of prewritten software and states that charges for the access or use of software on a remote server are generally subject to tax. The rate is 6.25%, with no local sales tax. Business customers that make software available to users in several states can apportion the tax using a multiple-points-of-use certificate.
This guide covers the rule, apportionment for multi-state users, custom software, and Massachusetts' nexus threshold. It is educational information, not tax advice. For other states, see our SaaS sales tax by state guide.
Massachusetts SaaS sales tax at a glance
| Question | Answer |
|---|---|
| Is SaaS taxable? | Yes |
| Key authority | 830 CMR 64H.1.3(3) and (14); Letter Ruling 12-8 (cloud computing) |
| Rate | 6.25% statewide; no local sales tax |
| B2B vs B2C | Both taxable |
| Multi-state users | Multiple-points-of-use certificate (Form ST-12) under 830 CMR 64H.1.3(15) |
| Custom software | Generally exempt |
| Nexus threshold | More than $100,000 in Massachusetts sales |
How Massachusetts taxes SaaS
Massachusetts taxes prewritten (canned) software regardless of how it is delivered. Under 830 CMR 64H.1.3(3), taxable transfers include "licenses and leases, transfers of rights to use software installed on a remote server, upgrades, and license upgrades," whether delivered electronically or by load and leave.
Section 64H.1.3(14) states the general rule for hosted software: "charges for the access or use of software on a remote server are subject to tax." It also includes a limit. Where there is no charge for using the software and the object of the transaction is acquiring some other good or service, such as bidding in an online auction, the access itself is not taxed.
The Department's Letter Ruling 12-8 applies these rules to a cloud computing arrangement.
Custom software and related services
- Custom software is generally exempt as a professional service transaction, regardless of how it is delivered (830 CMR 64H.1.3(6)).
- Personal and professional services and reports of individual information are generally exempt.
- Access to database services and processing of customer data have their own sections in the regulation. Products that are mainly information or data processing should be reviewed against those rules rather than assumed to be taxable software.
B2B vs B2C
Massachusetts taxes SaaS sold to businesses and consumers alike. Business buyers can use resale and exempt-organization exemptions where they apply, and the multiple-points-of-use rules below.
Multiple points of use
Many business customers make software available to employees in several states. Under 830 CMR 64H.1.3(15):
- A business purchaser that knows at the time of purchase that software will be concurrently available for use in more than one jurisdiction delivers Form ST-12, a multiple-points-of-use exemption certificate, to the seller. This includes software accessed electronically, regardless of where the server is.
- The purchaser then reports and pays the apportioned tax directly to each jurisdiction.
- Apportionment must be reasonable, consistent, and uniform and supported by the purchaser's records. The regulation gives the number of computer terminals or licensed users in each jurisdiction as examples. It may not be based on the location of the servers where the software is installed.
Sellers that receive a valid ST-12 do not collect Massachusetts tax on that sale.
Sourcing
Without a multiple-points-of-use certificate, the sale is generally sourced to where the customer receives or uses the software, usually the customer's address. Massachusetts has a single statewide rate, so there is no local rate to apply.
Nexus and registration
A remote retailer must register, collect, and remit Massachusetts sales tax if its Massachusetts sales exceeded $100,000 in the prior or current calendar year, under 830 CMR 64H.1.9. Register with the Department of Revenue through MassTaxConnect.
For filing frequencies and registration steps, see our Massachusetts sales tax guide.
What to do next
- Collect 6.25% on SaaS sold to Massachusetts customers.
- Accept and store Form ST-12 from business customers with users in several states.
- Separately state custom development and professional services on invoices.
- Review data and information products against the database-access rules.
- Track Massachusetts sales against the $100,000 threshold.
Kintsugi collects Massachusetts tax on SaaS, tracks exemption certificates, and files your returns. See Kintsugi for SaaS.
Frequently asked questions
Is SaaS taxable in Massachusetts?
Yes. Massachusetts taxes transfers of rights to use prewritten software installed on a remote server, and charges for access to software on a remote server are generally taxable.
What is the Massachusetts sales tax rate on SaaS?
6.25%. There are no local sales taxes.
How do I handle a business customer with users in several states?
The customer can give you Form ST-12, a multiple-points-of-use certificate. You then do not collect Massachusetts tax, and the customer pays apportioned tax to each state, typically based on where its users are. Apportionment cannot be based on server location.
Is custom software taxable in Massachusetts?
Generally no. Custom software is treated as a professional service transaction regardless of the method of delivery.
What is the Massachusetts economic nexus threshold?
More than $100,000 in Massachusetts sales in the current or prior calendar year.
Sources
- Massachusetts Department of Revenue, 830 CMR 64H.1.3, Computer Industry Services and Products
- Massachusetts Department of Revenue, Letter Ruling 12-8, Cloud Computing
- Massachusetts Department of Revenue, 830 CMR 64H.1.9, Remote Retailers and Marketplace Facilitators
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