Is SaaS Taxable in Massachusetts? 2025 Guide
Yes, Massachusetts taxes SaaS. Directive 13-3 made clear that prewritten software is taxable regardless of delivery method—including SaaS. The rate is 6.25% with no local taxes.
Quick Reference
Directive 13-3: The Key Ruling
Massachusetts issued Directive 13-3 specifically addressing cloud computing and SaaS. The ruling is clear: prewritten software is taxable regardless of whether it's delivered on physical media, downloaded, or accessed via the cloud.
The DOR's position is that the method of delivery doesn't change the nature of the transaction—you're still licensing prewritten software.
B2B Exemptions Are Limited
Important: Unlike some states with broad B2B exemptions, Massachusetts only exempts software used directly in manufacturing or R&D. General business use—even by other businesses—is taxable. Your B2B customers likely still owe tax.
What Qualifies for Exemption
- Software used directly in manufacturing processes
- Software used for research and development
- Software purchased for resale
What Does NOT Qualify
- General business productivity software
- Administrative and back-office tools
- Sales and marketing software
- Most SaaS used for "normal" business operations
Economic Nexus
Massachusetts threshold is $100,000 in Massachusetts sales in the prior calendar year. This is lower than many states. If you have customers in the Boston tech hub, you may hit this threshold quickly.
What's Taxable
- Prewritten computer software (any delivery method)
- SaaS subscriptions
- Cloud software access
- Software updates and maintenance that include software
What's Exempt
- Custom software designed for a single purchaser
- Software for manufacturing (with certificate)
- Software for R&D (with certificate)
- Separately stated training and consulting
Check Your Massachusetts Nexus
With Boston's tech concentration, many SaaS companies hit the $100K threshold. Find out if you're over.
Start Free AnalysisHow to Register
- Authority: Massachusetts Department of Revenue
- Timeline: 1-2 weeks for online registration
- Filing: Monthly, quarterly, or annually. Monthly if >$100/month average, quarterly if $25-100/month, annually if <$25/month.
Sources
- Statute: M.G.L. c. 64H, §1 (definition of tangible property)
- Key Ruling: Directive 13-3 (Computer Software Taxation)
- Directive 13-3 (Computer Software Taxation)
- Letter Ruling 17-3 (SaaS sourcing)
- TIR 05-15 (Prewritten software definition)
- Last Verified: 2025-12-21