FY99H1A Tax Expenditures Part IV

Fiscal Affairs Division

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 from the sales and use tax represented 22% of total tax revenues for Fiscal Year 1997.

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.

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.

Computation of Massachusetts Sales and Use Tax by Vendor*

Gross Receipts
From Taxable Sales

Apply 5% Tax

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.

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.

List of Sales and Use 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: $316.1

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: $352.0

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: $205.6

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: $93.1

3.105	Exemption for Water
	Sales and service of water are exempt from sales tax.
	Origin: M.G.L. c. 64H, § 6(i) Estimate: $30.3

3.106	Exemption for Newspapers and Magazines
	Newspapers and magazines are exempt from sales tax.
	Origin: M.G.L. c. 64H, § 6(m) Estimate: $22.8

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 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 1997 were $60.3 million. Origin: M.G.L. c. 64H § 6(g) Estimate: $58.2

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%. 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: $218.9

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: $1.1

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: $182.0

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: $22.3

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: $54.6

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: $14.0

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: $18.9

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: $0.7

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: $1.5

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: $137.0

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: $45.4

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 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: $9.5

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: $1.0

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: $8.3

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: $83.1

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: $92.9

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: $0.9

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: $1.1

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: $1.1

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: $1.7

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. Origin: M.G.L. c. 64H, § 6(j) Estimate: $13.9

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: $38.5

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: 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: $1,074.7

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: $571.7

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: $1,302.0

3.504	Nontaxation of Internet Access and Related Services
	Internet access services, electronic mail services, electronic bulletin board services, web hosting services or similar on-line computer services are not subject to the sales and use tax. Origin: M.G.L. c. 64H § 1 Estimate: $10.0

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: $5.4

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: M.G.L c. 64H, 26, c. 64I, § 27 Estimate: $60.7

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: $2.4

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.

KEY	ORIGIN
	M.G.L.	Massachusetts General Laws
	ESTIMATES
	All Estimates are in $ millions

Executive Office for Administration and Finance
Fiscal Affairs Division
State House, Room 272
Boston, MA 02133
(617) 727-2081

Last updated on January 21, 1998