Massachusetts Lawyers Weekly article, “SJC: Software Accessed Online Subject to Sales Tax,” quotes Michael E. Porter

A recent case, Citrix Systems, Inc., et al. v. Commissioner of Revenue, called on the SJC to look at three of Citrix’s popular online software products — GoToMyPC, GoToMeeting and GoToAssist — and resolve whether the commissioner of revenue and the Appellate Tax Board had properly ruled that purchases of subscriptions to those products were sales of software subject to sales tax.

The SJC recently answered in the affirmative in a 19-page decision written by Justice Elspeth B. Cypher.

Hemenway & Barnes counsel, Michael E. Porter, said it has been a problematic exercise in many cases to advise clients on whether they need to pay sales tax on certain transactions involving software. In about 20 percent of cases, the software is clearly either a taxable product or a nontaxable service, but there is a “ton of gray in between,” Porter said. “The rules are on the edges,” he added.

In the aftermath of Citrix, assessing whether a particular online offering is a taxable product or non-taxable service will likely continue to require a fact-intensive inquiry, Porter said.

In light of the Citrix decision, practitioners will still be left with the prospect of advising clients by reasoning by analogy to the most similar product whose tax status has already been determined, Porter said. Porter added that there is no blanket “default” practice.

Michael E. Porter, counsel at Hemenway & Barnes, previously served as Deputy General Counsel at the Massachusetts Department of Revenue. He has more than 30 years of state and local tax experience with a particular emphasis on Massachusetts tax issues.

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