This document summarizes new Massachusetts sales tax requirements on computer services effective July 31, 2013. It notes that a 6.25% sales tax will apply to computer system design, prewritten software, website design using customized code, data processing and consulting services. The tax applies when the vendor is located in MA and provides services to a third party purchaser located in MA. Vendors must file sales tax returns even if no tax is due to avoid potential inquiries from the Department of Revenue. The document also summarizes new federal tax increases for individuals earning over $200,000 including additional Medicare tax and a 3.8% tax on investment income exceeding certain thresholds.

1. By: Steven Buccigross
August 13, 2013

2. • Effective for sales occurring on or after July
31, 2013:
– Not if occurred before, but not paid until after July 31, 2013
• Sales tax of 6.25% on qualified computer
services
• Services must be a “trade or business” of the
vendor to be taxable
• Sales must be to a third party
2

3. • Computer system design services
• Planning, consulting, designing, of new
computer systems (i.e. integrating hardware
with software)
• Prewritten software (i.e. Microsoft Office,
MacAfee Antivirus, QuickBooks, etc.)
• Website design (if using open source code,
i.e. Java)
3

4. • Data access/processing services/disaster
recovery (i.e. Database)
• Information management systems
• Consulting/evaluation services on existing
systems (i.e. data migration)
• Training on modified software/technical
support (broken out on invoice)
• Website design/hosting (if using customized
code to create website)
4

5. • Vendor located in MA and purchaser goes to
vendor for service
• Vendor is aware of purchases located within
MA (i.e. Invoice)
• Does not matter if software will be “hosted”
outside of MA
• MPU (multiple points of use) – Certificates
should be obtained by purchaser if used all
over the country and tax will only be on
purchase of sale allocated to MA purchase
5

6. • 830 CMR 64H.13
• TIR 13-10
• FAQ’s – The new computer and software
services tax effective July 31, 2013 (see
handout)
6

7. • http://www.mass.gov/dor/all-taxes/sales-and-use/
• Massachusetts WebFile System allows electronic
filing and payment of Sales/Use returns
• Need to set up account, if not already created
• Account Management/Manage Business
Locations/Tax Types to add Sales/Use Tax to
existing WebFile account
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8. 8
• Resale Certificates should be collected if no
sales tax charged to purchaser.
• Returns are due even if $0 balance due to
avoid potential DOR inquiry
Amount
Collected
Return Requirement Due Date
> $100 Annually (Form ST-9A) January 20th
$101 - $1,200 Quarterly (Form ST-9Q or Form
STS-Q for Services)
4/20;7/20;10/20;1/20
< $1,201 Monthly (Form ST-9 or Form
STS-M for Services)
20th of each
subsequent month

9. 9
• Establishes Statute of Limitations:
– 3 year period
• Reduces Penalties and Interest:
– Late Filing Penalty = 25% Max
– Late Payment Penalty = 25% Max
– Interest = Fed STR + 4%
• Shows Compliance with Tax Laws:
– Gross Negligence = Additional 20%
– Willful Evasion = $10,000 Max Fine

10. • 2013 top rate increase for 35% -
39.6%
• Phase out of itemized deduction if
AGI is over $300,000 (MFJ)
– 3% of AGI
• Phase out of personal exemption if
AGI is over $300,000 (MFJ)
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11. 11
An employee is liable for additional Medicare tax if the
individual’s wages, other compensation, or self-
employment income exceeds the threshold for his/her
filing status (does not include income from S-
Corporation)
First $200,000
($250,000 Married)
Employer/Employee
All Remaining Wages
Employer/Employee
Current Law 1.45%/1.45% employed
2.9% self-employed
1.45%/1.45% employed
2.9% self-employed
2013 Tax Increase 1.45%/1.45% employed
2.9% self-employed
1.45%/2.35% employed
3.8% self-employed

12. • Employers are required to withhold
additional Medicare tax on wages or
compensation it pays to an employee in
excess of $200,000 in a calendar year in the
actual pay period in which it pays wages in
excess of $200,000 to an employee
• There is no requirement that an employer
notify its employee at the time of increased
withholdings
• There is no employer match for this
additional Medicare tax
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13. 13
• Beginning in 2013, certain investment
income will be subject to an additional 3.8%
surtax
• The 3.8% tax is imposed on the lesser of:
– Net Investment Income (NII) or
– The excess of Modified Adjusted Gross Income
(MAGI) over a certain threshold amount
• Tax imposed on 1040 return, not through
payroll

14. 14
• What are the “thresholds”?
• The threshold amount for a tax year depends
on your filing status
Filing Status Threshold
Married filing jointly $250,000
Single, Head of
Household
$200,000
Married filing separately $125,000

15. 15
• What is Net Investment Income (NII)?:
– Category #1: Gross income from interest,
dividends, annuities, royalties and rents
– Category #2: Gross income from a passive
activity (IRC Section 469 “materially”
participation rules)
– Category #3: Net taxable gains (i.e. Capital
gains, Section 1231 gains)

16. • What is NOT included in Net Investment
Income?:
– Wages, salary and other compensation income;
– Income on the exercise of compensatory options;
– Income on the vesting of restricted stock;
– Qualified retirement plan distributions
– Non-passive S-Corp and LLC income
– Municipal bond interest
***All of these however are included in Modified
Adjusted Gross Income (MAGI)***
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17. • Example: Single taxpayer with NII of $40,000
and business income of $160,000 – He
received a $50,000 retirement plan
distribution at year end
W/OUT $50K DISTRIB WITH $50K DISTRIB
MAGI = $200K MAGI = $250K
THRESHOLD = $200K THRESHOLD = $200K
EXCESS = $0 EXCESS = $50K
NII = $40K NII = $40K
SUBJ TO 3.8% = $0 SUBJ TO 3.8% = $40K
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19. Steven T. Buccigross, CPA
Partner
StevenB@fdcpa.com | 617.456.2443
Mr. Buccigross is a partner in Feeley & Driscoll’s audit practice with extensive experience serving as
engagement manager for several clients in the following industries: professional services, not-for-profits,
manufacturing and distribution, construction, software and private equity funds. Steve has a BS in Business
Administration from Bryant University. He is a member of the Massachusetts Society of Certified Public
Accountants and the American Institute of Certified Public Accountants. Prior to rejoining Feeley & Driscoll,
Steve was a manager with a national accounting firm in the audit practice and served clients across several
industries. He spent time serving as practice monitor of the National Office of Risk Management where he
developed and performed testing procedures to monitor the firm’s functional areas, which included
leadership, ethics, engagement acceptance, human resources, engagement performance and monitoring. In
addition, Steve has taken part in the quality control monitoring of audit engagements including interoffice
inspections. Steve serves on the Board of Directors for a local non-profit, ARTMORPHEUS, which connects
artists in all disciplines with the practical skills, entrepreneurial knowledge and services that will enable them
to succeed.