Does this mean I get a refund? Massachusetts Repeals Sales and Use Tax on Computer and Software Services

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By Sean Williamson

We previously reported on the Massachusetts computer services tax that became effective on July 31st after the legislature overturned Governor Deval Patrick's veto of An Act Relative to Transportation Finance. Facing strong opposition from the state's technology sector the Massachusetts legislature retroactively repealed the tax by passing An Act Repealing the Computer and Software Services Tax, which was signed into law on September 27th. Now, customers who paid the repealed tax should take steps to ensure they are promptly repaid or credited the appropriate amount by their vendors.

The Massachusetts Department of Revenue (DOR) has issued guidance to vendors regarding how to address the repeal. If a vendor collected but did not remit the taxes to the Massachusetts DOR, it is required to make reasonable efforts to return the taxes to the customers from whom they were collected. If a vendor collected and remitted the taxes to the Massachusetts DOR, the vendor may file an abatement application. Vendors should be keenly aware that abatement applications related to the repealed computer services tax are due by December 31, 2013. Furthermore, although Vendors may repay or credit customers prior to receiving an abatement, they must do so "within 30 days of receiving said abatement." Although the Massachusetts DOR guidance is helpful, Vendors should consult their tax attorneys to determine their particular obligations.

Customers may consider reviewing applicable invoices for periods (a) from July 31, 2013 through September 27, 2013 to determine the repayment or credit amount they are owed, if any, and (b) after September 27th to ensure the vendors have updated their invoicing practices to account for the repeal. Customers should then contact their applicable vendors to ensure they are promptly repaid or credited the appropriate amount. If a vendor already remitted the taxes to the Massachusetts DOR, the customer should encourage the vendor to promptly file an abatement application. If the vendor resists, the customer may want to review the agreement between the parties to determine whether the vendor has a contractual duty to comply with the request. Last, customers should be aware that if (i) a vendor repays or credits a customer after filing an abatement application and (ii) the government's refund to the vendor is delinquent, then the customer is entitled to any interest earned from the government.