Massachusetts Supreme Court Rules on Oracle USA, Inc. v. Comm’r of Revenue
On May 21, 2021, the Massachusetts Supreme Judicial Court determined whether vendors could apply for refunds through the general abatement process for the portion of sales tax they had paid to Massachusetts that was attributable to out-of-state use of the software through G.L. c.62c. In Oracle USA, Inc. v. Comm’r of Revenue, No. SJC-13013, 2021 BL 189431 (Mass. May 21, 2021), the court concluded the vendors Oracle USA, Oracle America, and Microsoft Licensing had a statutory right for apportionment under G.L. c. 64H Section 1 for software transferred for use in more than one state and that the general abatement process was available to the vendors, who had paid sales tax in excess of that which was properly apportioned to the sales in Massachusetts.
Hologic had previously purchased or licensed software from the vendors Oracle USA, Oracle America, and Microsoft. Hologic timely installed the software on its computers in Massachusetts, and the vendors collected sales tax from Hologic based on the total value of the transactions. The vendors then remitted the sales tax to Massachusetts in a timely fashion on their monthly sales and use tax returns. After remittance, Hologic informed the vendors that only a small percentage of its employees were actually using the software in Massachusetts. The vendors then submitted a timely application for abatement and refunds for the portions of tax they remitted on software that had been transferred for use outside of Massachusetts.
The commissioner denied the applications for abatement because the vendors had not complied with the regulations requiring that the purchaser must submit to the seller a “multiple points of use” certificate at the time of the purchase or no later than the time the transaction is reported for sales and use tax. The vendors appealed the decision on the ground that they had a right to apportionment under G.L. c. 64H §1 and the requirement of the exemption certificate was only relevant in determining whether there was a duty to collect and remit tax and did not prohibit taxpayers from later seeking an abatement for the taxes remitted that were attributable to out-of-state software sales. At first, the board decided in favor of the commissioner and both sides requested findings of fact and a report. Then, of its own accord, the board reheard the appeal and decided in favor of Oracle USA, Oracle America, and Microsoft. The commissioner sought reconsideration, which was denied, and then appealed the denial. The Supreme Court took this case up on its own motion.
Focusing on relevant statutes and legislative intent, the court found the permissive “may” gave the commissioner discretion to decide how to apportion the relevant sales tax but it did not empower him to make the decision when apportionment is proper or required. Using the 2005 legislative edits to the codes surrounding software, its delivery, and its definitions, the court reasoned the legislature intended to allow taxpayers to apportion sales tax on software in situations where the software is transferred for use in more than one state and, therefore, the method of apportionment would be based on the software’s use. The court emphasized that to give the commissioner the governing authority over apportionment would run counter to the legislature’s exclusive and nondelegable authority to decide fundamental policy decisions, such as taxation.
The court also analyzed the issue of the timing of the vendors’ abatement request within the established regulatory abatement framework. While the commissioner may set out the preferred methodologies for abatement, these methods do not preclude vendors from seeking abatement and apportionment outside of the usual framework because two of the three methodologies did not have an express temporal element. The court emphasizes the use of the permissive “may” in all of the relevant governing statutes to arrive at its decision that Oracle USA, Oracle America, and Microsoft are entitled to ask for apportionment and abatement when a certificate or direct pay permit is presented or when an error is discovered related to apportionment.
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