The Multiple Points of Use (MPU) exemption offers businesses a powerful but often underutilized way to minimize sales tax overpayment on software, digital services, and cloud-based tools used across multiple states. Originally designed to prevent duplicative taxation when a single transaction spans several jurisdictions, the MPU exemption remains unevenly adopted and inconsistently applied across the United States.

This article provides a comprehensive explanation of what the MPU exemption is, where it applies, how to claim it correctly, and what planning opportunities and risks taxpayers should be aware of.

What Is the MPU Sales Tax Exemption?

The Multiple Points of Use (MPU) exemption allows a buyer to apportion a software or digital services purchase across multiple states where the product will be used. Instead of a vendor collecting sales tax for the entire transaction based on the location of the buyer, the buyer can self-assess use tax in each state where usage occurs.

This exemption is most commonly used for:

• Enterprise software licensing

• Cloud-hosted platforms

• SaaS subscriptions

• Virtual environments or hosted systems

In general, the buyer agrees to calculate and remit the proper use tax due in each state, rather than overpaying sales tax to a single state at the time of purchase.

States That Allow the MPU Exemption

The MPU exemption is only available in a limited number of states, each with different rules and documentation requirements.

States Modeled on the Streamlined Sales and Use Tax Agreement:

• Massachusetts

• Minnesota

• Ohio

• Washington

Other States and Local Jurisdictions with MPU Provisions:

• Texas

• Tennessee

• Utah

• New York

• Pennsylvania

• Colorado

• City of Chicago

Each of these jurisdictions imposes specific procedural requirements for claiming MPU, such as the submission of a form or affidavit, a reasonable method for allocating use, or advance notice to the seller. Some require claims to be made at the time of purchase, while others allow refund claims after the fact.

Best Practices for Claiming the MPU Exemption

To take advantage of the MPU exemption without creating audit risk, buyers and sellers should follow a number of best practices:

1. Reasonable Allocation Method

Buyers must allocate use of the purchased product or service across states based on reasonable and verifiable data. This can include:

• Employee work locations

• IP address tracking

• Time sheets or time-tracking data

• VPN or login records

• Internal usage logs or assignments

2. Proper Documentation

Jurisdictions generally require documentation at the time of purchase or shortly thereafter. Examples include:

• New York: Form ST-121

• Texas: Form 01-339

• Utah: Internal allocation statement and Form TC-721 (recommended)

• Chicago: Personal property lease apportionment affidavit

3. Vendor Coordination

The seller must be willing to accept the MPU claim and not collect full sales tax upfront. This may require education, especially for national vendors unfamiliar with the exemption.

4. Strong Recordkeeping

Buyers should retain all supporting documentation for MPU claims, including calculations, employee data, vendor invoices, and correspondence. These records are essential in the event of an audit.

Common Challenges in Applying MPU

MPU claims often raise complex factual issues, particularly in modern workplaces with flexible arrangements. Some key challenges include:

• Unused or unassigned licenses: How to apportion if some licenses are never activated?

• Cloud-based software with unknown server location: How to determine where use occurs?

• Remote or hybrid employees: How to track location-based use when employees travel or work from home?

• License term variability: How does usage allocation apply to annual renewals, perpetual licenses, or indefinite terms?

There is no uniform solution to these challenges. Taxpayers must develop a reasonable, consistent methodology that reflects actual or anticipated use and is supported by available data.

Refund Claims and Timing Issues

Some jurisdictions only allow MPU claims at the time of purchase, while others allow purchasers to seek refunds after the fact if the exemption was not claimed initially.

Examples:

• Massachusetts courts have allowed retroactive MPU claims despite regulatory silence.

• Minnesota disallows retroactive MPU refunds entirely.

• Washington permits refunds under standard refund provisions.

Buyers should never assume that a refund will be allowed retroactively. To avoid denial, the exemption should be claimed proactively whenever possible.

Selected State Highlights

Texas

Texas allows MPU claims but requires detailed documentation and allocation. The exemption applies to software and digital services if the use is clearly allocated and the proper form is submitted to the vendor.

New York

New York requires sellers to collect tax only on the portion of the software used within the state, based on the buyer’s certification. Buyers must self-assess and remit use tax for other states.

City of Chicago

Chicago applies MPU principles through its personal property lease transaction tax. Buyers must provide an affidavit allocating usage of leased software or cloud-based services to avoid full taxation under city rules.

Constitutional and Legal Considerations

Some tax professionals argue that states that do not permit MPU-style apportionment may run afoul of the U.S. Constitution’s Commerce Clause and Due Process Clause, particularly the requirement for fair apportionment. The constitutional principle is that a state may only tax activity with a substantial connection to the state, and cannot tax the entire value of a product or service used across multiple jurisdictions.

In Oracle USA Inc. v. Commissioner of Revenue, a Massachusetts court ruled that the MPU exemption could be claimed through a refund even if a regulation suggested otherwise, citing the taxpayer’s statutory rights. This case has strengthened the position that statutory authority prevails over administrative guidance when claiming MPU benefits.

Planning Opportunities and Structuring Considerations

Taxpayers with significant software licensing needs may consider proactive structuring strategies to simplify MPU compliance and reduce exposure, such as:

• Centralizing procurement in a state with favorable MPU or SaaS tax treatment

• Utilizing states that don’t tax intangible property or do not treat SaaS as taxable

• Separating licenses from services on invoices to better allocate taxable and nontaxable portions

• Automating location tracking to support MPU calculations

Proper planning reduces risk and enables companies to take full advantage of the MPU exemption where available.

Conclusion: The MPU Exemption Is Underused, But Valuable

The Multiple Points of Use sales tax exemption is one of the most practical—but complicated—tools available to businesses managing multistate software and digital service use. Despite limited adoption, the MPU exemption allows buyers to allocate use fairly and avoid overpaying tax on multijurisdictional transactions.

However, the rules are highly state-specific, documentation-heavy, and often misunderstood. Businesses must develop clear internal processes, gather usage data, coordinate with vendors, and maintain strong audit documentation.

With the digital economy growing and remote work becoming standard, understanding and properly applying the MPU exemption will remain a crucial part of multistate tax compliance for years to come.

© 2025 Jeanette Moffa. All Rights Reserved.