Charges for cloud computing products sold by a taxpayer are not subject to Massachusetts sales and use tax when the products are used with the customer’s own software, or open-source software available for free on the Internet, because there is no sale of prewritten software. Cloud computing products that include software licensed by the taxpayer are subject to tax as services that are part of the sales price of prewritten software, whether or not there is a separately stated charge for the software or a sublicense of the software to the customer. The fact that the software is not downloaded onto the customer’s computer also is not determinative. The object of the transaction is the acquisition of the right to use the software. Charges for transfers of data to and from customers in Massachusetts and the taxpayer’s servers outside Massachusetts are taxable because taxable telecommunications include charges for transmission of data or information by various means, including transmission over the Internet. Charges for remote storage service, which allows customers to store, retrieve, and maintain content, data, applications, and software on the taxpayer’s servers, are not subject to tax because the object of the transaction is a nontaxable service.
Letter Ruling 12-8 , Massachusetts Department of Revenue, July 16, 2012 , ¶401-404