Citrix argued that subscription fees for its online products did not constitute taxable transfers of tangible personal property because (1) the transactions did not involve the actual transfer of title to or possession of the products to users (i.e., users merely received the right to remotely access software), and (2) the true object of the transaction was the provision of a remote connection service rather than the transfer of tangible personal property. The Court rejected both arguments.
First, the Court reviewed the text and legislative history of the sales and use tax statutes, G. L. c. 64H, §§ 1, 2. The Court rejected Citrix’s argument that granting users the right to remotely access software is not a transfer of tangible personal property. The Court emphasized that in 2005 the Massachusetts legislature amended the definition of “tangible personal property” to include transfers of standardized computer software, including “electronic, telephonic, or similar transfer.” The Court concluded that the taxability of prewritten computer software does not turn on the method of delivery. In addition, the Department of Revenue’s regulation, 830 Code Mass. Regs. § 64H.1.3(14)(a), provides that charges for the access or use of software on a remote server are generally taxable. The Court agreed with the board’s finding that subscriptions for Citrix’s online products involved transfers of rights to use software on a remote server and were therefore taxable.
Second, the Court upheld the board’s finding that Citrix customers paid primarily to access online software, rather than Citrix’s backend support services (e.g., developing, maintaining, testing, and troubleshooting the software). The Court concluded that Citrix’s sales were taxable because the “true object” was the customer’s access to software, rather than a professional or personal service.