Recently a Massachusetts taxpayer requested Massachusetts’s Commissioner of Revenue (“Commissioner”) to determine the taxability of its on-line training program. Taxpayer provides an interactive training program for various industries. Taxpayer is the primary source of the on-line content. Taxpayer’s cloud services are hosted by a third party. Customers have modest to limited interaction with the on-line training. Their interaction consists of answering questions to confirm participants’ understanding.

Massachusetts imposes a sales tax on pre-written software regardless of the method of delivery. However, Massachusetts does not subject sales tax on database access. See 830 CMR 64H.1.3 (13).

In instant case, customer was purchasing the on-line training for the information provided and not for the underlying software used to deliver the information. The customer did not receive software nor did customer have the ability to control the software. The Commissioner concluded the true object of the transaction was for accessing information and not the use of software.  Accordingly, the on-line training was not taxable.

The decision may have been different if customers contributed more to the on-line interaction. The Commissioner commented that if a customer was able to produce its own training programs from the interaction, the transaction may be taxable.