This month, we continue our blog series with a contrast of a couple of northeastern states – Massachusetts and Connecticut – specifically their treatment of technology items for sales tax purposes.

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Software as a Service (SaaS) in Massachusetts vs. SaaS in Connecticut

Software as a Service (SaaS) is subject to sales tax in several jurisdictions across the country.  Approximately half of states do tax the SaaS revenue stream. As you’ll see below, both states are similar regarding their treatment of sales tax.

Cloud Computing Services are subject to sales and use tax in Massachusetts.

Charges for access to or use of software on a remote server are subject to sales tax in the state.

SaaS is taxable in Connecticut.

Software in Massachusetts vs. Software in Connecticut

Massachusetts does impose sales and use tax on prewritten computer software sold electronically.

Sales in Massachusetts of prewritten computer software, regardless of the method of delivery, are subject to the state’s sales tax.

Connecticut does not impose sales and use tax on custom computer software delivered electronically, but with exceptions.

Effective Oct. 1, 2019, sales of prewritten computer software delivered electronically are considered sales of tangible personal property subject to the state’s standard rate. However, if prewritten computer software delivered electronically is purchased by a business for use by such business it is taxable at the 1% rate for computer and data processing services.

The sale of custom computer software delivered electronically is not subject to tax in Massachusetts. Sales of custom computer software are not taxable, regardless of method of delivery.

The sale of custom computer software delivered electronically is not subject to tax in Connecticut.

Because custom software is not tangible personal property, any charges (such as license fees) for the mere use and possession of the software, stated separately from charges for taxable computer and data processing services or prewritten software, are not subject to sales and use taxes.

Digital Goods

States vary in their treatment of electronically delivered goods including e-books, music, and streaming video.  Some states consider all of these types of products to be taxable or not, while others call out specific taxability depending upon the product.

In Massachusetts, digital products are not taxable.

The sale of digital products delivered electronically is exempt from tax.

In Connecticut, digital products are taxable.

Effective Oct. 1, 2019, Connecticut imposes sales tax on digital goods as taxable tangible personal property at the standard state rate.

Sales Tax Holidays

States often offer sales tax holidays during specific times of the year, during which certain items are sold tax free. These vary greatly by state. Here’s how Massachusetts and Connecticut shake out.

Connecticut had a sales tax holiday on August 20-26 where all clothing and footwear that had a maximum cost of $100 was sold sales tax free. For more information on this holiday, click here. (https://portal.ct.gov/drs)

Massachusetts had a sales tax holiday on August 12-13 where all tangible personal property that had a maximum cost of $2,400 was sold sales tax free. For more information on this holiday, click here. (https://www.mass.gov/info-details/sales-tax-holiday-frequently-asked-questions)

For more information on sales tax holidays, click here. (https://taxadmin.org/sales-tax-holidays/)

Economy

Originally dependent on agriculture, fishing and trade, Massachusetts was transformed into a manufacturing center during the Industrial Revolution. During the 20th century, the Massachusetts economy shifted from manufacturing to services. Modern Massachusetts is a global leader in biotechnology, engineering, higher education, finance, and maritime trade.

Agriculture is also important in the state. Particular agricultural products of note include green house products making up more than one third of the state’s agricultural output, cranberries, sweet corn and apples are also large sectors of production. The state is the second-largest cranberry producing state in the union after Wisconsin.

Connecticut’s key industries include finance, insurance and real estate. Major financial industry employers include The Hartford, Travelers, Cigna, Aetna, Mass Mutual, People’s United Financial, Bank of America, Realogy, Bridgewater Associates, GE Capital, William Raveis Real Estate and Berkshire Hathaway.

Manufacturing is a huge sector contributing to the state’s GDP. Raytheon Technologies and its subsidiaries include Pratt & Whitney and Collins Aerospace is the state’s leading manufacturer. Lockheed Martin subsidiary, Sikorsky Aircraft operates Connecticut’s single largest manufacturing plant in Stratford, where it makes helicopters. Other major manufacturers include the Electric Boat division of General Dynamics, which makes submarines, Boehringer Ingelheim, a pharmaceuticals manufacturer and ASML, which makes precision lithography machines used to create circuitry on semiconductors and flat-screen displays.

 Massachusetts Fun Facts:

  • Boston built the first subway in the United States in 1897.
  • The Fig Newton was named after Newton, Massachusetts.
  • The American Industrial Revolution began in Lowell. Lowell was America’s first planned industrial city.
  • The first Thanksgiving Day was celebrated in Plymouth in 1621.
  • Acushnet is the hometown of the Titleist golf ball company.
  • Harvard was the first college established in North America and was founded in 1636. Because of Harvard’s size there is no universal mailing address that will work for every office at the University.
  • Glaciers formed the islands of Nantucket and Martha’s Vineyard during the ice age.
  • The Basketball Hall of Fame is located in Springfield.
  • Norfolk County is the birthplace of four U.S. presidents: John Adams, John Quincy Adams, John Fitzgerald Kennedy and George Herbert Walker Bush.

Connecticut Fun Facts:

  • Connecticut and Rhode Island never ratified the 18th Amendment (Prohibition).
  • Connecticut is home to the oldest U.S. newspaper still being published: The Hartford Courant, established in 1764.
  • The first speed limit ever set was passed into law in Connecticut in 1901, a neck breaking limit of 12 miles per hour.
  • Connecticut was the first state to have permanent license plates, starting in 1937.
  • Cattle branding in the United States began in Connecticut when farmers were required by law to mark all of their pigs.
  • The first lollipop-making machine opened for business in New Haven in 1908. George Smith named the treat after a popular racehorse.
  • The inventor of the process of vulcanization, Charles Goodyear, was born in New Haven. Goodyear was a self taught chemist and engineer.
  • Noah Webster, of Webster’s dictionary, was born on October 16, 1758, in the West Division of Hartford, CT (now West Hartford). He attended college at Yale in New Haven. His first edition of his dictionary was published in 1806.
  • Eli Whitney was famed for inventing the cotton gin, was from New Haven, CT.

We invite you to further explore Massachusetts and Connecticut in these earlier blogs we crafted over the years. LINK Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether in Massachusetts, Connecticut, or other U.S. States, and help you navigate the complex tax structures arising from multistate operations. Call us to help you achieve the best tax efficiencies.

https://milesconsultinggroup.com/blog/2019/10/29/focus-on-massachusetts-2/

https://milesconsultinggroup.com/blog/2022/05/17/focus-on-connecticut-2/