SALT Report 1814 – The Massachusetts Commissioner of Revenue issued a letter ruling regarding the taxability of remote data backup and restoration services and software transfers. The Taxpayer who requested the ruling is an out-of-state corporation that provides the following computer back-up storage and restoration services to Massachusetts customers:
- Automatic and continuous back-up of customer computer files on remote servers maintained by the Taxpayer,
- Duplication of customer computer files,
- Secure transmission and storage of duplicated files via the Internet to the Taxpayer’s data centers,
- Routine checks on backed-up files to ensure the stored version matches the current customer version,
- Access to stored files from remote locations not tied to a specific computer, and
- Restoration of stored files
The Taxpayer provides software that the customer must download onto their computer. The software is provided free of charge and may be downloaded by anyone with access to the internet. The software allows the Taxpayer’s back-up and restoration program to run continuously on the customer’s computer and, at predetermined times, transfers copies of files from the customer’s hard drive to the Taxpayer’s servers.
Based on the above facts, the Commissioner ruled that the Taxpayer’s back-up and restoration services are not taxable under 830 CMR 64H.1.3(14). Furthermore, the Commissioner notes that the transfer of the software to the customer is not taxable and does not affect the taxability of the back-up and restoration services as the software’s sole function is to facilitate the connection between the customer’s computers to the Taxpayer’s remote servers. Therefore, since the software is open-source (free) software available on the Internet and the object of the transaction is to acquire back-up and restoration services, sales tax does not apply to the Taxpayer’s sales of these services.
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