FACTS: Tire Company, Inc. is a Massachusetts retail tire dealer. The tires which it purchases from manufacturers are subject to the federal tire manufacturers' excise, 26 U.S.C. § 4071. When Tire Company resells these tires to its retail customers, it separately states an amount representing the federal excise on its invoices.

Motor Company, Inc. is a Massachusetts retail truck dealer. Its sales of trucks to retail customers are subject to the federal retail excise on truck tractors, and heavy trucks and trailers, 26 U.S.C. § 4051. Motor Company separately states the amount representing the federal excise on its invoices to its customers.

ISSUE: In determining the amount of the sales price upon which the sales tax is based, must Tire Company and Motor Company include the federal excises as "other expense[s]" pursuant to G.L. c. 64H, § 1(14)(a)(ii)?

DISCUSSION: In determining the amount of the sales price upon which the sales tax is based, a vendor must include the cost of materials, labor or services, interest charges, losses or "other expense[s]". G.L. c. 64H, § 1(14)(a)(ii). The critical factor in determining whether a federal excise is such an other expense, absent a specific statutory provision, is the legal incidence of the excise. Where the legal incidence of the federal excise is on the vendor, manufacturer, producer or other non-consumer, the excise is considered a cost of doing business and must be included in the sales price as an other expense. Where the legal incidence of the excise is on the consumer, the excise is not considered a cost of doing business, and is not includable in the sales price as an other expense. In this situation, the vendor is merely a collector or conduit for the federal retail excise.

The legal incidence of the federal tire manufacturers' excise is upon vendors, manufacturers, producers or other non-consumers. 26 U.S.C. § 4071. Therefore, this excise is considered a cost of doing business and must be included in the sales price as an other expense pursuant to G.L. c. 64H, § 1(14)(a)(ii).

The legal incidence of the federal retail excise on truck tractors, and heavy trucks and trailers is upon consumers. 26 U.S.C. § 4051. Therefore, the federal excise is not a cost of doing business and is not includable in the sales price as an other expense pursuant to G.L. c. 64H, § 1(14)(a)(ii).

DIRECTIVE: In determining the sales price upon which the sales tax is based, Tire Company, Inc. must include the amount representing the federal tire manufacturers' excise, whether or not it separately states the federal excise on its invoices.

The federal retail excise on truck tractors, and heavy trucks and trailers is not includable in the sales price charged by Motor Company, Inc.

REFERENCE: 26 U.S.C. §§ 4051, 4071; G.L. c. 64H, § 1(14)(a)(ii).

/s/Ira A. Jackson
Ira A. Jackson
Commissioner of Revenue

June 12, 1986

DD 86-1

This Directive represents the official of the Department of Revenue on the application of the law to the facts as stated. The Department and its personnel will follow this Directive, and taxpayers may rely upon it, unless it is revoked or modified pursuant to 830 CMR § 62C.01(5)(e). In applying this Directive, however, the effect of subsequent legislation, regulations, court decisions, Directives, and TIRs must be considered, and Department personnel and taxpayers may rely upon this Directive only if the facts, circumstances and issues presented in other cases are substantially the same as those set forth in this Directive.