On March 27, 2025, the Washington State Department of Revenue (“Department”) issued Excise Tax Advisory (ETA) 3242.2025, addressing how the multiple points of use (MPU) exemption applies to software maintenance agreements that include both taxable and nontaxable services. Buyers claiming the MPU exemption issue sellers a Digital Products and Remote Access Software Exemption Certificate and pay use tax directly to the Department. Tax is apportioned based on users of eligible products in Washington compared to users everywhere.
Washington allows an MPU exemption for certain eligible products, including:
- Digital goods
- Prewritten computer software
- Remotely accessed prewritten computer software
- Digital automated services (DAS)
- Digital codes
ETA 3242.2025 informs taxpayers how the MPU exemption applies to the sale of a mixed element software maintenance agreement (MESMA). A MESMA is a software maintenance agreement that contains both taxable products, such as software updates, and nontaxable products, such as helpdesk services. A MESMA that qualifies as a bundled transaction is eligible for the MPU exemption if it meets three criteria:
- The MESMA includes at least one MPU-eligible product concurrently available for use inside and outside of Washington;
- The nontaxable products provided under the MESMA relate to the MPU-eligible products; and
- The MESMA does not contain any other taxable products.
A nontaxable product in a MESMA relates to an MPU-eligible product if the nontaxable product provides support, maintenance, or improvements to the MPU-eligible product.
Buyers purchasing a MESMA that qualifies for the MPU exemption may apportion use tax based on total users of all MPU-eligible products in Washington compared to total users of all MPU-eligible products everywhere. Users of nontaxable products are not factored into the apportionment formula.
The ETA also notes documentation requirements for buyers seeking eligibility for the MPU exemption. These requirements include contracts, user location documentation, purchase orders, and invoices.
While additional guidance in this area is appreciated, there are some traps for the unwary. Notably, the inclusion of even a relatively minor taxable product or service that is not MPU-eligible can make the entire MESMA taxable. Washington recognizes a de minimis exception for bundled transactions. If charges for taxable products in a bundle are de minimis (10% or less of the total purchase price), the bundle is not taxable. However, ETA 3242.2025 does not indicate whether de minimis taxable products disqualify MESMAs under the third criteria for MPU eligibility (i.e., the MESMA does not contain any other taxable products).
Laraine Nebrida, Director in Ryan’s Transaction Tax practice, believes that “this guidance is a favorable change compared to how the Department previously applied MPU to software maintenance agreements in the past.” If you have questions about whether or not your software and software maintenance purchases are eligible for Washington’s MPU exemption, contact one of the Ryan experts listed below.
TECHNICAL INFORMATION CONTACTS:
Zachary Reif
Principal
Ryan
602.955.1792
zack.reif@ryan.com
Laraine Nebrida
Director
Ryan
713.629.0090
laraine.nebrida@ryan.com
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.