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The Tax Expenditure Budget

Part IV: Sales and Use Tax

 

Massachusetts imposes a sales and use tax on retail sales. In addition to the sales and use tax, there are several separate excises, each limited to a particular type of commodity. These special excises have not been included in this tax expenditure budget.

The Massachusetts sales and use tax, first imposed in 1966, is levied at a rate of 5%. The sales tax applies to sales made within the state, and the use tax to property and services purchased outside of Massachusetts but intended for use within the state.

Revenues brought in by the sales and use tax represented 22% of total tax revenues for Fiscal Year 1996.


Sales and Use Tax: Basic Structure

Tax Base: For the purposes of this tax expenditure budget, we have chosen not to make any assumptions about the base of the Massachusetts sales and use tax. Some people take a narrow view of what a retail sale is, limiting the term to sales to final consumers, i.e , individuals. Others would include sales to businesses, especially in instances where the purchase will not become an ingredient or component in a product to be sold. In an effort to acknowledge both theories, we will simply list the various exemptions under the sales tax. Some or many of these exemptions would be considered to be properly excluded from the tax base depending upon one's point of view.

Taxable Unit: The sales and use tax is an in rem tax; that is, it is levied on the property or service to be sold or used.

Rate Structure: The sales and use tax rate is 5% of the purchase price.

Taxable Period: The tax is imposed at the time of sale or use and remitted at specified intervals by the vendor.


Computation of Massachusetts Sales and Use Tax by Vendor *

Computation of Sales Tax


* A purchaser is also responsible for paying use tax directly to the Commonwealth on the sales price of taxable property or services purchased out-of-state and stored, used, or otherwise consumed in the Commonwealth, provided that a sales and use tax of 5% or more has not been paid separately to another state.


Interstate and International Aspects: Massachusetts applies the destination principle to international and interstate sales. Accordingly, exports are exempt and imports are taxable under either the sales or the use tax. Similarly, taxable services performed in the Commonwealth but used outside of the Commonwealth are exempt from sales tax. Statutory exemptions for exports of property and for services used outside of the Commonwealth are therefore not listed as tax expenditures.


Types of Tax Expenditures under the Sales Tax

In the case of the sales tax, all tax expenditures are of a single type. They all result from the exclusion of certain transactions from the taxable base. The exclusion can be based on any of a number of characteristics of the transaction - who the buyer is, who the seller is, what the product or service is, what the product or service will be used for, etc. - but structurally all such tax expenditures operate in the same way. Hence, we have omitted the designation of tax expenditure types from the descriptions in this section.


Sales and Use Tax List of Tax Expenditures

3.000 EXEMPT ENTITIES
 
3.001 Exemption for Sales to the Federal Government
Sales to the federal government are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(d)
Estimate: N.A.
 
3.002 Exemption for Sales to the Commonwealth
Sales to the Commonwealth, its agencies and political subdivisions are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(d)
Estimate: N.A.
 
3.003 Exemption for Sales to Tax-Exempt Organizations
Non-profit organizations are exempt from sales tax on purchases of goods and services to be used in carrying out their tax-exempt purposes.

Comment: This estimate excludes sales of building materials and supplies used in construction contracts, which are covered under item 3.412.

Origin: M.G.L. c. 64H, § 6 (e) and (x)
Estimate: $303.9
 
3.100 EXEMPT PRODUCTS/SERVICES
 
3.101 Exemption for Food
Food for human consumption is exempt from sales tax, including food purchased with federal food stamps. The exemption does not cover meals served in restaurants and similar establishments. Meals are taxed under the sales tax at a rate of 5%.

Origin: M.G.L. c. 64H, § 6(h) and (kk)
Estimate: $346.0
 
3.102 Exemption for Certain Food and Beverages Sold in Restaurants
Although generally food and beverages sold in restaurants are taxed, there are certain exceptions. These are: a) food sold by weight, measure, count, or in unopened original containers or packages (for example, milk, meat, bread); b) beverages in unopened original containers which have a capacity of at least 26 fluid ounces; and c) bakery products sold in units of six or more.

Origin: M.G.L. c. 64H, § 6(h)
Estimate: N.A.
 
3.103 Exemption for Clothing
Sales of clothing or footwear up to $175 per item are exempt from sales tax. The exemption does not include special clothing or footwear designed for athletic or protective uses and not normally worn except for these uses.

Origin: M.G.L. c. 64H, § 6(k)
Estimate: $209.0
 
3.104 Exemption for Medical and Dental Supplies and Devices
Medical and dental supplies and devices, such as prescription drugs, oxygen, blood, artificial limbs and eyeglasses, are exempt from sales tax.

Comment: Data was only available for some of the exempt items.

Origin: M.G.L. c. 64H, § 6(l) and (z)
Estimate: $74.0
 
3.105 Exemption for Water
Sales and service of water are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(i)
Estimate: $24.0
 
3.106 Exemption for Newspapers and Magazines
Newspapers and magazines are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(m)
Estimate: $43.0
 
3.107 Exemption for the American Flag
The American flag is exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(w)
Estimate: N.A.
 
3.108 Exemption for Certain Precious Metals
Sales valued at $1,000 or more of the following precious metals are exempt from the sales tax: rare coins of numismatic value; gold or silver bullion or coins; and gold or silver tender of any nation except the Republic of South Africa or Namibia which is traded and sold according to its value as precious metal. Fabricated precious metals which have been processed or manufactured for industrial, professional, or artistic use do not qualify for the exemption.

Origin: M.G.L. c. 64H, § 6(ll)
Estimate: N.A
 
3.109 Exemption for Cement Mixers
Concrete mixing units mounted on the back of trucks are exempt from sales tax. Spare parts for such units are also exempt. The truck chassis is subject to sales tax.

Origin: M.G.L. c. 64H, § 6(y)
Estimate: N.A.
 
3.110 Exemption for Fertilizers, Insecticides and Fungicides
Fertilizers, insecticides and fungicides are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(p)
Estimate: $1.2
 
3.111 Exemption for Meals Served by Continuing Care Facilities
Meals served by continuing care facilities to residents of those facilities are exempt from the sales tax on meals.

Origin: uncodified
Estimate: N.A
 
3.200 EXEMPT, TAXED UNDER ANOTHER EXCISE
 
3.201 Exemption for Alcoholic Beverages
Alcoholic beverages, except those sold in restaurants and similar establishments, are exempt from sales tax. They are subject to an excise at a rate which is in most cases higher than 5% of the retail price. Exceptions are cider and beer. On these two items, the excise is equivalent to a sales tax rate of approximately 1% on cider and 2% on beer.

Comment: Revenues collected under the alcoholic beverages excise for Fiscal Year 1996 were $59.7 million.

Origin: M.G.L. c. 64H § 6(g)
Estimate: $91.0
 
3.202 Exemption for Motor Fuels
Motor fuels are exempt from sales tax. They are subject to an excise at a rate higher than 5% of the retail price.

Comment: The estimate represents revenues that would be collected under the sales tax if all motor fuels were taxed at 5%. Under the motor fuels and special fuels excises, revenues for Fiscal Year 1995 were $577.5 million. The Massachusetts motor fuels tax rate is currently 19.1% of the average price per gallon, with a $.21 minimum.

Origin: M.G.L. c. 64H, § 6(g)
Estimate: $171.0
 
3.300 EXEMPT COMPONENT OF A PRODUCT OR CONSUMED IN PRODUCTION
 
3.301 Exemption for Items Used in Making Clothing
Sales of materials used in making clothes, such as thread and fabric, are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(v)
Estimate: $2.1
 
3.302 Exemption for Materials, Tools, Fuels and Machinery Used in Manufacturing
Materials, tools, fuels and machinery, including spare parts, used in manufacturing are exempt from sales tax if they become components of a product to be sold or are consumed or directly used in the manufacturing process.

Comment: The estimate is only for machinery and equipment. Components are not included to avoid double counting.

Origin: M.G.L. c. 64H, § 6(r) and (s)
Estimate: $175.5
 
3.303 Exemption for Materials, Tools, Fuels and Machinery Used in Research and Development
Materials, tools, fuels and machinery, including spare parts, used in research and development by certified manufacturing or research and development corporations are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(r) and (s)
Estimate: $21.8
 
3.304 Exemption for Materials, Tools, Fuels, and Machinery Used in Furnishing Power to Consumers
Materials, tools, fuels, and machinery, including spare parts, used in furnishing gas, water, steam, or electricity to consumers through mains, lines or pipes are exempt from sales tax if they are consumed or directly used in furnishing the power.

Origin: M.G.L. c. 64H, § 6(r) and (s)
Estimate: $55.3
 
3.305 Exemption for Materials, Tools, Fuels, and Machinery Used in Furnishing Power to an Industrial Manufacturing Plant
Materials, tools, fuels, and machinery, including spare parts, used in furnishing power to an industrial manufacturing plant are exempt from sales tax if they are consumed or directly used in furnishing the power.

Origin: M.G.L. c. 64H, § 6(r) and (s)
Estimate: $16.1
 
3.306 Exemption for Materials, Tools, Fuels, and Machinery Used in Newspaper Printing
Materials, tools, fuels, and machinery, including spare parts, used in newspaper printing are exempt from sales tax if they become components of a product to be sold or are consumed or directly used in newspaper publishing.

Comment: The estimate below excludes fuel inputs which are included in items 3.401, 3.402 and 3.403.

Origin: M.G.L. c. 64H, § 6(r)&(s)
Estimate: $23.2
 
3.307 Exemption for Certain Items Used in the Manufacturing of Cast Metal Products
Patterns, molds, dies, tools, sandhandling equipment, and machinery, including spare parts, used exclusively in the manufacturing of cast metal products are exempt from sales tax.

Comment: To the extent the exemption covers machinery used in manufacturing, the estimate is included in item 3.302.

Origin: M.G.L. c. 64H, § 6(ee)
Estimate: N.A.
 
3.308 Exemption for Materials, Tools, Fuels, and Machinery Used in Agricultural Production
Materials, tools, fuels, and machinery, including spare parts, used in agricultural production are exempt from sales tax if they become components of products to be sold or are consumed or directly used in agricultural production. The exemption includes the same items when used for the production of livestock, poultry and animals in research.

Origin: M.G.L. c. 64H, § 6(r) and (s)
Estimate: $4.1
 
3.309 Exemption for Materials, Tools, Fuels, and Machinery Used in Commercial Fishing
Materials, tools, fuels, and machinery, including spare parts, used in commercial fishing are exempt from sales tax if they become components of a product to be sold or are consumed or directly used in commercial fishing.

Origin: M.G.L. c. 64H, § 6(r) and (s)
Estimate: $1.7
 
3.310 Exemption for Materials, Tools, Fuels and Machinery Used in Commercial Radio and TV Broadcasting
Materials, tools, fuels and machinery, including spare parts, used in commercial radio and TV broadcasting are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(r) and (s)
Estimate: $1.4
 
3.400 EXEMPTIONS FOR SPECIFIED USES OF PRODUCTS/SERVICES
 
3.401 Exemption for Electricity
Residential electricity, electricity purchased by businesses with five or fewer employees, and electricity purchased for qualified industrial use are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(i) and (qq)
Estimate: $131.1
 
3.402 Exemption for Fuel Used for Heating Purposes
Residential heating fuel, heating fuel purchased by businesses with five or fewer employees and heating fuel purchased for qualified industrial use are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(j) and (qq)
Estimate: $56.0
 
3.403 Exemption for Piped and Bottled Gas
Residential gas, gas purchased by businesses with five or fewer employees and gas purchased for qualified industrial use are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(i) and (qq)
Estimate: $59.0
 
3.404 Exemption for Steam
Residential steam, steam purchased by businesses with five or fewer employees and steam purchased for qualified industrial use are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(i) and (qq)
Estimate: $4.0
 
3.405 Exemption for Certain Energy Conservation Equipment
Equipment for a solar, wind or heat pump system used as a primary or auxiliary energy source in a principal residence is exempt from sales tax.

Comment: Data were only available only for solar and wind equipment.

Origin: M.G.L. c. 64H, § 6(dd)
Estimate: N.A.
 
3.406 Exemption for Funeral Items
Coffins, caskets, and other funeral items are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(n)
Estimate: $5.0
 
3.407 Exemption for a Motor Vehicle for a Paraplegic
A motor vehicle owned and registered for the personal use of a paraplegic is exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(u)
Estimate: $0.6
 
3.408 Exemption for Textbooks
Textbooks and other books required for instruction in educational institutions are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(m)
Estimate: $11.0
 
3.409 Exemption for Books Used for Religious Worship
Bibles, prayer books and other books used for religious worship are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(m)
Estimate: N.A.
 
3.410 Exemption for Containers
Most containers are exempt from sales tax. These include sales of empty returnable and non-returnable containers to be filled and resold, containers whose contents are exempt from the sales tax and returnable containers when sold with the contents or resold for refilling.

Origin: M.G.L. c. 64H, § 6(q)
Estimate: $94.0
 
3.411 Exemption for Certain Sales by Typographers, Compositors Color Separators
Sales by typographers, compositors or color separators of composed type, film positives and negatives and reproduction proofs, or transfers of such items to a printer, publisher, or manufacturer of folding boxes for use in printing, are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(gg)
Estimate: N.A.
 
3.412 Exemption for Sales of Building Materials and Supplies to be Used in Connection with Certain Construction Contracts
Materials and supplies used in connection with construction contracts with the United States and Massachusetts and its subdivisions are tax exempt where the construction is for public purposes. Materials and supplies used in connection with construction contracts with a tax-exempt organization are tax exempt where the construction is to be used exclusively in carrying out the organization's charitable purpose. The exemption includes rentals of equipment as well.

Origin: M.G.L. c. 64H, § 6(f)
Estimate: $122.7
 
3.413 Exemption for Plants and Seeds
Plants and parts of plants suitable for planting to produce food for human consumption are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(p)
Estimate: $0.8
 
3.414 Exemption for Feed
Feed for livestock and poultry to be sold or to be used for human consumption or research, and feed for pelt-producing animals, is exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(p)
Estimate: $1.7
 
3.415 Exemption for Livestock and Poultry
Livestock and poultry of a kind ordinarily used for human consumption are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(p)
Estimate: N.A.
 
3.416 Exemption for Commercial Fishing Vessels
Vessels, machinery, equipment and spare parts used exclusively in commercial fishing are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(o)
Estimate: $1.0
 
3.417 Exemption for Commuter Boats
Vessels, materials, tools, repair and spare parts used exclusively to provide scheduled commuter passenger service are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(pp)
Estimate: N.A.
 
3.418 Exemption for Fuels, Supplies and Repairs for Vessels Engaged in Interstate or Foreign Commerce
Fuels, supplies and repairs for vessels engaged in interstate or foreign commerce are exempt from sales tax.

Comment: Data were available only for fuels sold to bunkering vessels.

Origin: M.G.L. c. 64H, § 6(o)
Estimate: $1.5
 
3.419 Exemption for Fuel Used in Operating Aircraft and Railroads
Fuel used in operating aircraft and railroads is exempt from sales tax.

Comment: At a community's option, jet fuel may be subject to a local tax at a rate of $0.05 per gallon or 5%, whichever is higher. For Fiscal Year 1996, local revenues from this source were $12.5 million.

Origin: M.G.L. c. 64H, § 6(j)
Estimate: $14.4
 
3.420 Exemption for Sales of Certain New or Used Buses
New and used buses which provide scheduled intra-city local service and are used by common carriers certified by the Department of Public Utilities are exempt from sales tax. The exemption includes replacement parts, materials and tools used to maintain or repair these buses.

Origin: M.G.L. c. 64H, § 6(aa)
Estimate: N.A.
 
3.421 Exemption for Films
Motion picture films for commercial exhibition are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(m)
Estimate: N.A.
 
3.422 Exemption for Telephone and Telegraph Services
Sales of residential telecommunications services of up to $30 per month are exempt from sales tax.

Origin: M.G.L. c. 64H, § 6(i)
Estimate: $38.0
 
3.500 EXEMPT NOT TAXABLE AS TANGIBLE PERSONAL PROPERTY
 
3.501 Nontaxation of Transfers of Real Property
Real estate is exempt from sales tax but is subject to a deeds excise at a rate of 0.456% of the taxable price of the property.

Comment: Barnstable County levies a deeds excise at a rate of 0.570% of the taxable price of the property. The estimate represents revenues that would be collected under the sales tax if sales of real property were taxed at 5%.

Origin: General exclusion of real property transactions
Estimate: $816.0
 
3.502 Nontaxation of Rentals of Real Property
Rental charges for real property are exempt from sales tax. However, rentals of rooms in hotels, motels or lodging houses are subject to a state excise at a rate of 5.0% of the rental price and, at a community's option, to a local excise of up to 4% of the rental price.

Origin: General exclusion of real property transactions
Estimate: $561.7
 
3.503 Nontaxation of Certain Services
Certain services are not subject to sales tax.

Comment: This estimate includes a range of services to individuals and businesses which are excluded from taxation by their omission from the statutory definition of services.

Origin: M.G.L. c. 64H
Estimate: $1,252.0
 
3.600 MISCELLANEOUS EXEMPTIONS
 
3.601 Exemption for Casual or Isolated Sales
Casual or isolated sales (sales by private parties) are exempt from sales tax, except casual sales of motor vehicles, trailers, airplanes and boats. Sales of these listed items are exempt only when they are between family members.

Origin: M.G.L. c. 64H, $§ 6(c) and M.G.L. c. 64I, § 7(b)
Estimate: N.A.
 
3.602 Exemption for Vending Machine Sales
Vending machine sales of ten cents or less are exempt from sales tax. In addition, sales through vending machines which exclusively sell snacks and candy with a sales price of less than one dollar are exempt from the sales tax on meals.

Origin: M.G.L. c. 64H, § 6(h) and (t)
Estimate: N.A.
 
3.603 Exemption for Certain Meals
Meals prepared by churches and hospitals, meals provided to organizations for the elderly, and meals provided by educational institutions are exempt from sales tax.

Comment: Estimate is for school lunches only.

Origin: M.G.L. c. 64H, § 6(cc)
Estimate: $5.6
 
3.604 Exemption for Certain Bed and Breakfast Establishments from Sales Tax on Meals and Room Occupancy Excise
Owner-occupied one, two and three-room bed and breakfast establishments are exempt from both the sales tax on meals and the room occupancy excise.

Origin: M.G.L. c. 64G, § 1, 2, 3, 3A and 6, and M.G.L. c. 64H, § 6(h)
Estimate: N.A.
 
3.605 Exemption for Certain Summer Camps from Sales Tax on Meals and Room Occupancy Excise
An exemption from both the sales tax on meals and the room occupancy excise is provided for summer camps for children age 18 and under, or for summer camps for developmentally disabled individuals. Camps that satisfy the above criteria but offer their facilities during the off-season to individuals 60 years of age or over for 30 days or less in any calendar year will not lose their exemption.

Comment: Estimate is for meals only.

Origin: M.G.L. c. 64G, § 2 and M.G.L. c. 64H, § 6(cc)
Estimate: $0.4
 
3.606 Exemption for Trade-in Allowances for Motor Vehicles and Trailers
Motor vehicles and trailers bought in a trade-in transaction are only subject to sales tax on the excess of the purchase price over the amount credited for the trade-in.


Origin: Massachusetts Statute 1990, c. 121, §§ 55, 66, 111 and M.G.L c.

64H, 26 and M.G.L. c. 64I, § 27
Estimate: $49.5
 
3.607 Exemption for Publications of Tax-Exempt Organizations
The publications of tax-exempt organizations are exempt from sales tax.

Comment: Data were available only for books published by tax-exempt organizations.

Origin: M.G.L. c. 64H, § 6(m)
Estimate: $4.0
 
3.608 Exemption for Gifts of Scientific Equipment
Gifts of scientific equipment or apparatus by manufacturers to non-profit educational institutions or to the Massachusetts Technology Park Corporation are exempt from sales tax.

Origin: M.G.L. c. 64H, $§ 6(jj)
Estimate: $12.0
 
3.609 Exemption for Vessels or Barges of 50 Tons or Over
Vessels or barges weighing 50 tons or over are exempt from sales tax when constructed in-state and sold by the builder.

Origin: M.G.L. c. 64H, § 6(o)
Estimate: N.A.
 
3.610 Exemption for Rental Charges for Refuse Containers
Rental charges in connection with service contracts by and between waste service firms and customers for refuse containers or bins are exempt from sales tax when the containers are placed on the customer's premises by waste service firms.

Origin: M.G.L. c. 64H, § 6(ii)
Estimate: N.A.
 
3.611 Exemption for Honor Trays
Food items purchased from honor trays are exempt from sales and meals taxes, provided that no item on the honor tray is sold for $1 or more.

Comment: Honor trays are vending carts in workplaces from which snacks may be purchased on the honor system.

Origin: M.G.L. c. 64H, § 6 (h)
Estimate: N.A.
 

PROPOSED HOUSE 1 CHANGES

* Phase Out the Telecommunications Tax Over Five Years
Under current law, purchases of telecommunications services are taxable under the 5% sales tax. These services include: local and long distance telephone, internet access, paging, facsimile, and data transmission. Residential purchases of local telephone services less than $30 a month are exempt.

Under the proposal, the tax rate would be reduced by one percentage point per year over the next five years. On January 1, 1998 the rate would be reduced to 4%; on January 1, 1999, 3%, and so on until the tax is eliminated on January 1, 2002. The tax on on-line services would be eliminated effective immediately.

Estimate: $16.0
 


KEY   

ORIGIN
 
M.G.L.Massachusetts General Laws

ESTIMATES
 

All estimates are in $ millions.






The Tax Expenditure Budget: Table of Contents
Part I |  Part II |  Part III |  Part IV |  Appendix A |  Appendix B |  Glossary  ]


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