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Oracle USA Inc. v. Commissioner of Revenue: Statutory Construction and Commissioner’s Authority

March 9, 2021, 9:00 AM

Typically, when we think of apportionment cases in the state and local tax world, we think of income tax apportionment. A rarer case, Oracle USA Inc. v. Commissioner of Revenue, involves sales tax apportionment and its pending decision with the Massachusetts Supreme Judicial Court represents an important case dealing with statutory construction and the authority granted to the Massachusetts’ Commissioner of Revenue.

Statutory & Regulatory Background

Before understanding the case, it is imperative to understand the statutory history. During 2005, the legislature amended the statute at issue to clarify that Massachusetts’ sales tax applies to both software delivered electronically and software delivered by tangible mediums. Additionally, the amendment provided that “the commissioner may, by regulation, provide rules for apportioning tax in those instances in which software is transferred for use in more than one state.” Thereafter, effective Oct. 20, 2006, the commissioner promulgated regulations regarding the apportionment of sales tax for the multistate use of software.

The regulation contained two important provisions. First, Paragraph 15(a) requires that if a purchaser “knows at the time of its purchase of prewritten computer software that the software will be concurrently available for use in more than one jurisdiction,” it may provide a Form ST-12 to the vendor “no later than the time the transaction is reported for sales or use tax purposes. 830 CMR 64H.1.3(15)(a). Second, Paragraph 15(b) provides that those sellers who know that the prewritten software will be used in more than one jurisdiction, but have not provided an exempt use certificate to the purchaser, “may work with the purchaser to produce the correct apportionment,” which the purchaser must certify. 830 CMR 64H.1.3(15)(b). Notably, 15(b) does not contain an explicit statement of when the apportionment calculation and certification must be completed.

Case Overview

Hologic Inc., headquartered in Massachusetts, develops, manufactures, and supplies medical diagnostic equipment. Between 2009 and 2012, Hologic purchased and licensed software from Microsoft Licensing GP, Oracle USA Inc., and Oracle America Inc. (“software companies”). Hologic had offices and employees both within and outside of Massachusetts. The software companies collected and remitted Massachusetts sales tax on the full amount of the sales proceeds. Hologic downloaded the software companies’ software onto its server in Massachusetts. Subsequently, Hologic’s employees accessed the software from their localities, several of which were located outside of Massachusetts. The software companies collected Massachusetts sales tax on the full amount Hologic paid for the software and timely remitted it to the Commonwealth.

Thereafter, Hologic informed the software companies that the software was being used outside of Massachusetts and provided data illustrating the percentage of use outside the Commonwealth. When the software companies became aware of the out-of-state use of the software, the software companies sought abatement and refund of the percentage of software not used in Massachusetts. Contesting the refund, the commissioner made two arguments. First, that the statutory amendment did not afford taxpayers the right to apportion sales of standardized software absent the commissioner’s promulgation of regulations. Second, the commissioner continued, the only way there could be apportionment is if a taxpayer complied with the provisions of Paragraph 15(a) or 15(b) of the regulations. Thus, since Hologic did not provide the software companies with apportionment certifications within 20 days of the sale, apportionment was no longer available to them.

The Massachusetts Appellate Tax Board (ATB) granted the refund, concluding that the software companies were entitled to seek apportionment through abatement. The ATB found the commissioner’s argument that the statute does not provide a right to apportionment nonsensical. Further, the ATB found that the statute did not in any way prohibit a taxpayer from seeking apportionment through the abatement process subsequent to collecting, remitting, and reporting sales tax. Moreover, the ATB reasoned that there was nothing in the regulation limiting the abatement process.

The case made its way to the Massachusetts Supreme Judicial Court, which held oral arguments during February 2021. The case is currently awaiting a decision by the Massachusetts high court.

What’s at Stake?

The crux of Oracle is statutory construction and legislative intent. Does the taxpayer have a right to an otherwise proper refund where it did not follow the procedure established by regulation for claiming an exemption? It is hard to fathom that the legislature would support the narrow view proffered by the commissioner; there is nothing in the text of the statute nor the legislative history suggesting such a constricted reading. Thus, the rules of statutory construction would seem to fall on the side of the taxpayers.

Oracle also implicates the commissioner’s authority, specifically whether the commissioner has the power to promulgate substantive law and determine whether or not taxpayers have a right to apportionment. The commissioner’s argument that the statute does not provide a right to apportionment is irrational; such an argument would allow the commissioner to determine the parameters of a process for which there was no underlying right—which offends the old adage that taxing authorities cannot legislate.

A final perplexing issue in this case is the commissioner’s insistence on the 20-day window following the end of a seller’s sales tax reporting period during which the invoice is received by a purchaser. The software companies asserted during oral argument that a 20-day window to satisfy apportionment regulations is insufficient and against legislative intent. Where taxpayers do not become aware of the use of their software until after 20 days has passed, the commissioner’s position essentially results in a windfall to the state to the detriment of the taxpayer. It is not inconceivable, and in fact it is likely common, that a taxpayer may purchase software and not know where it will be used until it is downloaded and reviewed internally; any calculation prior would be total speculation. If forced to quickly speculate where the software will be used in a multi-state business, the taxpayer may over or underestimate its potential usage prior to true implementation and use. To force compliance within such a short timeframe overly simplifies a complicated analysis while displaying an ignorance to the complexities of various software programs and diverse taxpayers, neither of which are one-size-fits-all.

Ultimately, Oracle is a case to watch and should provide an interesting decision on statutory interpretation and the authority vested in the commissioner.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Jennifer Karpchuk is the co-chair of the State and Local Tax (SALT) Controversy and Planning practice at Chamberlain Hrdlicka. She may be reached at Stewart Weintraub is the SALT Practice Chair Emeritus, and Alissa Gipson is an associate in the Tax Controversy and Tax Planning sections.

Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts discussing developments and current issues in taxation. To contribute, please contact us at