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A Software as a Service agreement outlines the terms of access and use of software hosted in the cloud. This agreement typically includes aspects such as subscription fees, service levels, and user permissions. Understanding this framework is vital for businesses entering into a Massachusetts Software as a Service Subscription Agreement, as it sets expectations for both the provider and the user.
The customer pays a subscription fee that covers the cost of goods. The thing to be mindful of is that the products are subject to sales tax. So you have to tax the goods through the monthly subscription fee.
Sales of digital products are exempt from the sales tax in Massachusetts.
In the state of Massachusetts, all charges for the customization transaction must be separately stated for the exemption to be applicable. Sales of digital products are exempt from the sales tax in Massachusetts.
In other words, Software-as-a-Service as a cloud-computing program that is only accessed remotely without delivery of a tangible media and does not include the user taking possession of the program is not subject to sales or use tax.
Additionally, software subscriptions services are considered tangible property and are subject to sales and use taxes. Prewritten software delivered electronically is not subject to tax.
The sale of electronic data products such as software, data, digital books (eBooks), mobile applications and digital images is generally not taxable (though if you provide some sort of physical copy or physical storage medium then the sale is taxable.)
Sales of custom software, personal and professional services, and reports of individual information are generally exempt from Massachusetts sales and use taxes.
The sale of electronic data products such as software, data, digital books (eBooks), mobile applications and digital images is generally not taxable (though if you provide some sort of physical copy or physical storage medium then the sale is taxable.) (Source: California BOE Publication 109 Non Taxable Sales).
Sales of custom software, personal and professional services, and reports of individual information are generally exempt from Massachusetts sales and use taxes.