ISSUE 1: If an out-of-state vendor sells tangible personal property at trade shows, fairs, and similar temporary events in Massachusetts from inventory located in the state, but has no other presence in the state, when must the vendor collect Massachusetts sales tax?

DIRECTIVE 1: All vendors must register and collect tax on sales of tangible personal property in Massachusetts, regardless of how often the vendor is in the state. In general, a Massachusetts sale subject to sales tax is any sale where title to or possession of the property is transferred in Massachusetts. All sales of inventory that a vendor brings to a show in Massachusetts are Massachusetts sales subject to sales tax.

 

ISSUE 2: If an out-of-state vendor sells or solicit orders for the sale of tangible personal property at trade shows, fairs, and similar temporary events in Massachusetts, but has no other presence in the state, when must the vendor collect Massachusetts use tax?

 

DIRECTIVE 2: An out-of-state vendor must register and collect use tax on property that its customers purchase for use in Massachusetts from inventory locate outside of the state if the vendor is engaged in business in Massachusetts. Under current Massachusetts law, a vendor that has no presence in Massachusetts apart from appearances at trade shows is not engaged in business in Massachusetts unless it solicits orders at trade shows held in Massachusetts for more than three days in one year.

 

DISCUSSION OF LAW:

 

A. Structure of Sales and Use Tax

 

Massachusetts imposes a five percent tax on sales of tangible personal property within the Commonwealth. See G.L. 64H, § 2. As a general rule, a sale is a Massachusetts sale subject to sales tax under G.L. c. 64H if title to or possession of the property sold is transferred in Massachusetts. G.L. c. 64H, § 1(12)(a). Under G.L. c. 64H, § 1(13), a "retail sale" subject to sales tax in Massachusetts does not include any sale in which the only transaction in the commonwealth is the execution of a sales contract, provided that the tangible personal property sold is not in the commonwealth at the time of such execution.

 

In addition to the sales tax, Massachusetts imposes a complementary five percent use tax on sales of property for storage, use, or other consumption in Massachusetts. The use tax applies primarily to sales when title to or possession of the property is not transferred in Massachusetts, but the property is nevertheless purchased for use in this state. [1] The use tax insures that Massachusetts vendors, who must collect sales tax on Massachusetts sales, are not placed at a competitive disadvantage vis-a-vis foreign vendors selling goods to Massachusetts customers.

 

In general, vendors are required to register with the Commissioner, to collect sales and use taxes from purchasers, and pay the amounts collected over to the Commissioner. Specifically, under G.L. c. 64H, § 3, "each vendor in the commonwealth" must collect sales taxes from purchasers. Under G.L. c. 64I, § 4, "every vendor engaged in business in the commonwealth" must collect use tax from purchasers.

 

B. State Jurisdiction Under the Federal Constitution to Require Collection of Sales and Use Taxes

 

The Supreme Court has consistently ruled that states may require vendors to collect and remit use taxes provided that the vendor has adequate nexus with the state. See, e.g., National Geographic Society v. California Board of Equalization, 430 U.S. 551 (1977); General Trading Co. v. State Tax Commission of Iowa, 322 U.S. 327 (1944). In 1967, the Court held that a vendor does not have sufficient nexus with a state to enable the state to require the collection of its use tax when the vendor's sole contact with the state was mail order solicitations of and sales to customers in that state. National Bellas Hess, Inc. v. Department of Revenue of Illinois, 386 U.S. 753 (1967). Existing Supreme Court precedents including National Bellas Hess, however, do not preclude a state from requiring vendors with a physical presence in the state, including salesmen or other solicitors, to collect sales or use taxes. See e.g. Scripto, Inc. v. Carson, 362 U.S. 207 (1960); compare Miller Brothers Co. v. Maryland, 347 U.S. 340 (1954) (occasional deliveries did not create nexus). Although the existence of tax nexus is an inherently factual determination, as a general rule, Massachusetts may constitutionally require vendors that solicit sales at trade shows in the state to collect sales and use taxes because these vendors have representatives physically present in the state. [2]

 

C. Sales and Use Tax Jurisdiction Asserted Under State Law

 

G.L. c. 64H, § 3, requires "each vendor in the commonwealth" to collect sales tax, and G.L. c. 64I, § 4, requires "every vendor engaged in business in the commonwealth" to collect use tax. Any vendor making sales from inventory located within Massachusetts, including vendors making sales at trade shows in this state, clearly must register with the Commissioner and collect sales tax. Whether a vendor at a trade show is "engaged in business in the commonwealth" and is therefore obliged to collect use tax on its sales of tangible personal property for use in Massachusetts is a separate question.

 

The term "engaged in business in the commonwealth" is defined under G.L. c. 64H, § 1(5). As most recently amended by St. 1988, c. 202, § 19, 33, this section reads, in relevant part:

 

"Engaged in business in the commonwealth", having a business location in the commonwealth; regularly or systematically soliciting orders for the sale of tangible personal property for delivery to destinations in the commonwealth or otherwise exploiting the retail sales market in the commonwealth through any means whatsoever, including, but not limited to, salesmen, solicitors or representatives in the commonwealth, catalogs or other solicitation materials sent through the mails or otherwise, billboards, advertising or solicitations in newspapers, magazines, radio, or television broadcasts, computer networks or in any other communications medium; or regularly engaged in delivery or property in the commonwealth.

 

The effect of the first sentence of this definition would be to require vendors engaged in mail order solicitations to collect use tax on sales of tangible personal property for delivery to destinations in Massachusetts even though the vendor has no presence in Massachusetts through trade show appearances or otherwise. However, in TIR 1988-13, the Department of Revenue announced that it would temporarily refrain from enforcing the amended definition of "engaged in business in the commonwealth" pending clarification, through federal legislation or judicial rulings, of federal limitations on states' use tax jurisdiction over mail order vendors. In the interim, the Department has followed the language that was contained in the first sentence G.L. c. 64H, § 1(5), before its amendment in 1988. This earlier language read as follows:

 

"Engaged in business in the commonwealth", having a business location in the commonwealth; regularly soliciting orders for the sale of tangible personal property by salesmen, solicitors, or representatives in the commonwealth, unless such activity consists solely of solicitation by direct mail or advertising via newspapers, radio or television; or regularly engaging in the delivery of property in the commonwealth other than by common carrier or United States mail.

 

Under this definition, the activity most likely to subject a vendor to use tax jurisdiction, if the vendor's only physical contact with Massachusetts is at trade shows, is regularly soliciting orders for the sale of tangible personal property by salesmen, solicitors, or representatives in the commonwealth. [3] A vendor with representatives at a trade show solicits orders for the sale of tangible personal property within the meaning of the statute if it displays or demonstrates its products, distributes catalogs, [4] accepts orders, or otherwise takes steps that are designed to promote the sale of its goods. A vendor can be soliciting orders within the meaning of the statute even if it makes no actual sales at a trade show. If a vendor solicits orders for the sale of tangible personal property through representatives in Massachusetts at trade shows for all or part of more than three calendar days in a calendar year, the vendor will be deemed to be "regularly" soliciting orders and to be "engaged in business in the commonwealth" for purposes of G.L. c. 64H, § 1(5).

 

D. Conclusion

 

Vendors that sell tangible personal property at Massachusetts trade shows from inventory located in Massachusetts must register and with the Commissioner and collect sales tax on all such sales, regardless of the frequency or duration of the vendors' presence in Massachusetts. Vendors attending trade shows in Massachusetts must collect use tax on sales of tangible personal property for use in Massachusetts, only if the vendor is "engaged in business in the commonwealth." A vendor will be deemed to be engaged in business in the commonwealth if it solicits sales of tangible personal property through representatives in Massachusetts at trade shows for all or part of more than three calendar days in a calendar year.

 

If a vendor is engaged in business in the commonwealth under this standard, it must register and collect use tax on all sales of tangible personal property for use in Massachusetts during the calendar year, including mail order sales made when the vendor does not have representatives physically present in Massachusetts. If a vendor engages in business in Massachusetts in any calendar year, the Commissioner will presume that the vendor will continue to engage in business in Massachusetts in the following year, and unless the vendor rebuts this presumption, the Commissioner will require the vendor to continue to collect use taxes in the following year even if, at any given date in that following year, the vendor has not yet solicited sales in Massachusetts for more than three days. The Department will apply the three-day rule prospectively, effective November 1, 1991, until TIR 88-13 is revoked or the Commissioner otherwise publicly modifies the rule.

 

/s/Mitchell Adams
Mitchell Adams
Commissioner of Revenue

 

MA:HMP:kwb

 

November 1, 1991

 

DD 91-3



[1] The use tax applies to Massachusetts sales of property for storage, use, or other consumption in this state, as well as to out-of-state sales for these purposes, but an exemption from the use tax for sales taxes paid prevents double taxation. See Boston Tow Boat Company v. State Tax Commission, 366 Mass. 474 (1974).

 

[2] At least one state has concluded that a vendor's solicitation of sales at trade shows will give the state jurisdiction to require the vendor to collect use tax. See Illinois Department of Revenue, Private Letter Ruling 90-0050 (February 6, 1990), Private Letter Ruling 88-0905 (December 8, 1988).

 

[3] This Directive addresses vendors whose only physical contact with Massachusetts occurs at trade shows. Therefore, vendors to whom this Directive applies do not send sales representatives to Massachusetts except at trade shows, do not deliver property to Massachusetts customers except by common carrier, and do not maintain a place of business in Massachusetts, within the meaning of G.L. c. 64H, § 1(5), except at trade shows.

 

[4] See Letter Ruling 82-71.