I practice tax law and write for forbes on tax law.. this area of law may seem confusing, but that is mostly for the media buzz. The law has generally been fairly clear.
Many states have long had laws that taxed "pre-written or canned software." MA is just one of the newer states that have enacted this law. New York has had the law in the books for years.
Pre-written software means that you've previously created software and you've literally re-used the code.
Professional, custom or designed software is still exempt as a "professional service."
What happens when you're like SAP and you start with canned software, but then customize it? Then, you pay sales tax on the canned portion and then you don't pay tax on the customization costs.
In sales tax audits, they test this by comparing code sold off the shelf to the code presented as "custom." Generally, consultants are used.
There are also sales tax on "informational reports." This started as paying sales tax for "stock tips" sent over the fax. But, today this has extended to informational reports that were created by software. Thus, a lot of businesses that "don't sell canned software" and provide a "service" cannot escape the tax law by simply providing the end product alone.
I can understand people getting angry, but the law has been around for a while... I've gone through multiple audits with companies such as reuters, bloomberg and etc. I don't particularly feel that its unfair, since if you provide a "custom service" then you're exempt.
Obviously, there are always going to be ways to "technically" get away with avoiding sales tax, but that doesn't mean that they're inherently unfair. Companies avoided paying sales tax on software for a while, until the states realized that they were being cheated by these businesses. Then, businesses decided that if we don't sell the software on "CDs" then its not tangible property and "legally not taxable." So, they would bring the CDs and install the software and then leave with the CD's to effectively avoid the sales tax.
Then, they started to allow the software to be hosted online and only provide the "end-product aka SaaS." Services are commonly exempt and hard to follow, thus they escaped the states radar for years. Its a cat and mouse game that will continue.
I think the best example is if an attorney or accountant were to provide the same exact tax return or memo to everyone, then it'd be taxable under sales tax law. But, because we provide a different memo or tax return to everyone (maybe using a system like turbotax or something), it is a custom product because the service is only applicable to that person. If the developer provides a copy of turbo tax, then its taxable because its always the same. But, if the developer uses RoR, Python or some other system to "create" the end product for the individual, then its not taxable. Hopefully, this crude example is decent enough to get the point across.