On —a week before its effective date of —the Massachusetts state legislature passed a law which the Department of Revenue interpreted by releasing TIR 13-10: Sales and Use Tax on Computer and Software Services Law Changes. According to the release above, the law applies the current 6.25% state sales tax on “the modification, integration, enhancement, installation or configuration of standardized software”.

Our Services

The full Technical Information Release elaborates on this summary but becomes vague when reading it from the perspective of web development.

If you consider our typical process, engagement with a client begins with discovery, continues through information architecture and design, moves into HTML/CSS/Javascript and ends with implementation of the HTML/CSS templates into a third-party content management system.

The question becomes: where in this web development process do the taxable items end? It may be easiest to look at our process in reverse to better examine the different services we provide.

CMS Integration

We use a number of third-party content management systems such as ExpressionEngine and Craft. There is no question that these CMSs are considered “standardized software” and that the act of configuring them and implementing HTML/CSS/Javascript templates into them is considered “modification, integration, enhancement, installation or configuration” so it seems pretty clear that these can be considered taxable items. No real ambiguity there.


Before we can modify any “standardized software,” we have to develop the HTML/CSS and Javascript. While this work is necessary for the eventual integration but not completed within the software itself, is it considered, by extension, part of the integration process?

To take this one step further: What if we are developing HTML/CSS/Javascript for a client who will then be implementing it into an in-house CMS solution and our engagement ends with the hand off of the templates? Is this work taxable because the eventual intent of the deliverable is to be integrated into a piece of software, even if we are not completing that work?

Perhaps, because writing custom jQuery is technically enhancing the jQuery library which could be considered “standardized software.” Although it isn’t ultimately clear, I would venture to guess that the Massachusetts DOR would consider these to be taxable items since they provide code which is necessary for the eventual customization of a CMS.

Information Architecture and Design

Continuing down the rabbit hole, we get to the information architecture and design phases. Although these have nothing to do with code or the “modification, integration, enhancement, installation or configuration of standardized software,” they are a requirement of the HTML/CSS/Javascript. Are these taxable items? I don’t know the right answer here but, in order to protect our clients and avoid the risk of being audited, I have to conservatively say, I guess so?.


Finally, all of the discovery that goes into our initial engagement with clients—kickoff meetings, user interviews, site audits, etc.—inform the architecture and design, which dictates the HTML, which eventually gets integrated into the CMS. Are these taxable?

What About Remote Servers?

Although it is fairly clear in Section III of the release that this only applies to customers operating in Massachusetts:

A vendor of Computer/Software Services is required to collect Massachusetts sales/use tax from the purchaser of such services if the sale is sourced to the customer in Massachusetts under the rules stated in part III.C of this TIR.

It becomes decidely less clear what happens when the client is located in Massachusetts but the software is being used out of state. The obvious scenario here would be when the code is actually being delivered by a server in another state.

In sourcing sales of computer system design services, the purchaser similarly may use a method of apportionment reasonably designed to reflect, in this case, the location of use of the computer system design work by the purchaser, where such method is consistent and uniform and is supported by the purchaser’s books and records. However, in general this work will be considered to be used by those parts of a business that utilize the computer system and in the locations where such use occurs.

Is the determining factor here where exactly the client is going to be using the software? For example, if a client is based in Massachusetts with a web server in New York but CMS users who are editing the site from devices inside their Massachusetts office, is this work taxable? I have no idea.

Multiple Points of Use Certificate (MPU)

To extend the previous scenario, let’s assume that was, in fact, taxable because the employees are in Massachusetts when they access the CMS (even if the server is elsewhere). What if half of the company works /accesses the CMS from their Boston location, but the other half uses the same code from a branch in New York?

The release does, in fact, address this and recommends having clients complete Multiple Points of Use Certificates (MPU - Form ST-12). This essentially allows clients to indicate which percentage of their employees will be using the software in Massachusetts and therefore what percent of the final work should be taxable.

The purchaser may use a method of apportionment reasonably designed to reflect the location of use of the modified software by the purchaser, where such method is consistent and uniform and is supported by the purchaser’s books and records.

Unfortunately, because “use of the modified software by the purchaser” doesn’t clear up the whether or not “use” means access to the software or where the software is actually running, we’re still left scratching our heads.

How We Are Going to Proceed

Out-of-state Clients

Although The Outfit is headquartered in Massachusetts, many (if not most) of our clients are not. It is our understanding that this tax is only applicable to our clients based in Massachusetts.

(The Vendor) must collect and remit Massachusetts tax on the transaction if the sale is sourced to Massachusetts…

Massachusetts Clients

At this time, because it is unclear as to whether or not the physical location of the eventual code (hosting location) will determine whether a particular project is taxable, we are going to err on the side of caution for our clients and for ourselves.

As described above, it is unclear which of our services are considered taxable. As a precaution, we’ll be applying this tax to the whole process from Discovery through CMS Integration. Additionally, we’ll be adding MPUs as a part of our regular contract process to comply with this legislation.

What’s Next?

We plan to be proactive and attend the MA Software Sales Tax Open Forum on August 7th and we encourage all of our peers to do the same. It is important that we not only fully understand this legislation, but that we work to ensure any ambiguity in its writing is cleared up.