Introduction

General Laws c. 64H, § 6(f) exempts from the sales and use tax "sales of building materials and supplies" that are "consumed, employed or expended" in a variety of construction projects by government and tax exempt organizations. It also exempts rental charges for "construction vehicles, equipment and machinery" rented specifically for use on the project site, or while being used exclusively for the transportation of materials for any such tax exempt project. This Directive clarifies the meaning and extent of this exemption.

Issue 1

What are "building materials and supplies" within the meaning of G.L. c. 64H, § 6(f)?

Directive 1

"Building materials and supplies" are the elements, constituents, or substances of which a building or structure can be made and that are physically incorporated into the structure, such as wood, brick, stone, or steel, as well as the provisions or stores needed to make a building or structure. To meet the terms of this exemption, the item must be a building material or supply, must be fully consumed and used exclusively in the construction activities of the § 6(f) project, and must not be used or useable by the contractor that employed them after the project is completed.



Examples 1

Examples of items that are building materials and supplies within the G.L. c. 64H, § 6(f) exemption are: electricity, diesel fuel, gasoline, oil, grease, coal, propane, welding and cutting gases, and other fuels used in the construction process; lumber and nails used in concrete forms that are expended in the exempt project; temporary drainage pipes necessary to building the structure that are later discarded; adhesive compounds, cleaning solvents and acids, tape, and sandpaper used in the construction process; cable, ropes, chains, welding rod and wire, and coughing rods (used to remove old welds) to the extent they are fully consumed on the project or have no other use after their removal from the project; and, bituminous concrete used to construct a temporary pedestrian pathway around a construction site, which materials are later removed and discarded.

Examples of items that are not building materials and supplies within the G.L. c. 64H, § 6(f) exemption are: electricity, diesel fuel, gasoline, oil, grease, coal, propane, and other fuels that are used in the non-construction activities of a project, such as in the project's warehouses or trailers; equipment, machinery and replacement parts that are not physically incorporated in the structure; hand tools and power tools, including saws, drills, grinders, oxygen torches and regulators, gouging torches; power cords, hoses, brushes, lighting fixtures; replacement parts and welding rod for construction vehicles that were owned by the contractor whether purchased for use on the project or not; replacement parts for tools, including saw blades, drill bits, grinding and cutoff wheels; office supplies such as paper; office equipment such as shelves, doors, furniture, phones, copiers, and computers; office supplies such as paper and toner; and building site office equipment such as office trailers and storage sheds.



Discussion 1

General Laws chapter 64H, section 6(f), exempts from the sales and use tax building materials and supplies used in a number of tax exempt public works construction projects. "Building materials and supplies" include all materials and supplies consumed, employed or expended in the construction, reconstruction, alteration, remodeling or repair of any building, structure, public highway, bridge or other such public work, as well as such materials and supplies physically incorporated therein. G.L. c. 64H, § 6(f). The statute makes only a limited attempt at defining the words "building materials and supplies." The statute does not provide guidance as to the scope of the terms building "materials" or building "supplies." Those terms must therefore be construed in accordance with common usage and ordinary meaning of words, considered in light of the statutory objectives and purposes sought to be accomplished by the Legislature. E.T. & L. Construction Co. v. Commissioner of Revenue, A.T.B. Docket no 147697, p. 14 (1987), citing Franki Foundation Co. v. State Tax Commission, 361 Mass. 614, 617 (1972). The ordinary definition of the word "material" is "the elements, constituents, or substances of which something is composed or can be made." Webster's Ninth New Collegiate Dictionary 733 (1987). More specifically, "material" is "[w]ood, brick, stone, steel, etc. used in the construction of a building or other improvement." Ballentine's Law Dictionary (3rd ed. 1969). "Supplies" are the "[m]eans of provision or relief; stores; available aggregate of things needed or demanded in amount sufficient for a given use or purpose; accumulated stores reserved for distribution; sufficiency for use or need; a quantity of something supplied or on hand . . . . " Blacks Law Dictionary 1291 (5th edition, 1979). Cf. Webster's Ninth New Collegiate Dictionary 1186 (1987) ("Supply: Provisions, Stores").

The Supreme Judicial Court has construed and placed limits on the scope of the exemption in S.J. Groves and Sons Co. v. State Tax Commission, 372 Mass. 140, 144-145 (1977). In accordance with S.J. Groves, equipment, tools, machinery and replacement parts that are not physically incorporated in the structure are not building materials and supplies; nor are overhead items such as electricity used in office space or office supplies such as paper; nor is office equipment such as a shed, shelves, doors and furniture used by a contractor in carrying out the work.

The S.J. Groves decision has helped clarify the statutory limits of the exemption. For example, the "definition" in section § 6(f) provides that "building materials and supplies" shall include "all materials and supplies consumed, employed or expended in the construction . . . of any building . . . as well as such materials and supplies physically incorporated therein." (Emphasis supplied). This statutory language suggests that the term building materials and supplies comprises at least two broad categories, those that become an integral part of the finished structure and those that, although not incorporated into the structure, have been consumed, employed or expended in the process of construction. As S.J. Groves stands for the proposition that purchased tools and equipment are not exempt, the Supreme Judicial Court must have read the term "building materials and supplies consumed, employed or expended" to mean something other than purchased tools and equipment. We believe that the "as well as" language of the statute means and includes those materials which, though they could have become physically incorporated into a structure, were instead used to construct some temporary structure or facility necessary to the completion of the project. An example of such exempt building materials and supplies not incorporated into the structure is found in J.W. Bateson Company, Inc. v. State Tax Commission, A.T.B. Docket No. 51371 (1970). There, the Appellate Tax Board ruled that lumber and nails used to construct scaffolding structures and concrete forms, all of which were discarded at the end of the project, were exempt under § 6(f). Easily recognizable building materials and supplies, such as lumber and nails, which are first acquired for use in a public works project, are used to construct temporary structures which facilitate the completion of the finished permanent structure, and which are either discarded after use or are not useable for any subsequent project, or for any other purpose, other than for recycling or reclamation, will be considered to be building materials and supplies within the scope of the exemption.

Building materials and supplies are exempt from the sales and use tax whether they become a part of the tax exempt structure or not, provided that they meet all other statutory requirements. G.L. c. 64H, § 6(f). It does not matter, for purposes of the § 6(f) exemption, whether the useful life of the item is less than one year, or whether the item may be expensed for federal income tax purposes. Cf. G.L. c. 64H, § 6(r). In addition to materials and supplies that are physically incorporated into the structure, both materials and supplies that are fully consumed in the construction process (e.g., diesel fuel consumed in off-road vehicles) or which have no use outside of the project (e.g., lumber and nails used in temporary concrete forms, assuming that the lumber and nails are discarded) are exempt. Cf. S.J. Groves and Sons Co. v. State Tax Commission, 372 Mass. 140, 144 (1977).

Issue 2

What are "construction vehicles, equipment and machinery rented specifically for use on the site" of a tax exempt project, or those "being used exclusively for the transportation of materials" for a tax exempt project, within the meaning of G.L. c. 64H, § 6(f)?

Directive 2

Rental charges for "construction vehicles, equipment and machinery" within the exemption at G.L. c. 64H, § 6(f) are charges for rented, not purchased, instrumentalities used in the erection or rehabilitation of buildings or structures that carry goods or people from one place to another on a project site for purposes of the construction activities in a tax exempt project; or that are part of the apparatus used in the tax exempt project. The exemption also extends to those vehicles if their sole off-site activity is the transportation of project materials. As the statute exempts only rental charges for this category of building materials and supplies, purchases of such vehicles, equipment, and machinery do not qualify for the exemption.

Examples 2

Examples of "construction vehicles, equipment and machinery" that fall within the rental charge exemption may include scaffolding and staging; engines used in making concrete footings; gas meters; jackhammers, post borers, or concrete vibrators, and machines that are powered by air compressors; welding and plasma machines; scissor lifts; cranes that move construction equipment from one part of a project site to another; traffic and safety equipment; and, replacement parts for rented construction vehicles, equipment and machinery; provided they are rented specifically for use on the site of the tax exempt project or are used exclusively for the transportation of materials for the construction activities on such public works projects.

Examples of rented items that are not "construction vehicles, equipment and machinery" and that fall outside the exemption are: rented power and hand tools; a rented dump truck that is used at both a tax exempt project and a non-exempt project; a rented construction vehicle that is used after hours for transporting workers away from the project site; rented office trailers and storage trailers; portable toilets; and, rented air conditioners used in an office shed.

Discussion 2

The statute exempts "rental charges for construction vehicles, equipment and machinery rented specifically for use on the site of any such tax exempt project or while being used exclusively for the transportation of materials for any such tax exempt project." G.L. c. 64H, § 6(f). Because the phrase "construction vehicles, equipment and machinery" is not defined in the statute, the terms must be construed in accordance with common usage and ordinary meaning of words, considered in light of the statutory objectives and purposes sought to be accomplished by the Legislature. Cf. E.T. & L. Construction Co. v. Commissioner of Revenue, A.T.B. Docket no 147697, p. 14 (1987), citing Franki Foundation Co. v. State Tax Commission, 361 Mass. 614, 617 (1972). "Construction" is the "erection of buildings; the creation of structures." Ballentine's Law Dictionary (3rd ed. 1969). A "vehicle" is that "in which persons, goods, etc. may be carried from one place to another, especially along the ground." Blacks Law Dictionary 1393 (5th edition, 1979). "Equipment" is "the implements used in an operation or activity : apparatus." Webster's Ninth New Collegiate Dictionary 421 (1987). "Machinery" is "any combination of mechanical means designed to work together so as to effect a given end." Warner Amex Cable Communications, Inc. v. Assessors of Everett, 396 Mass. 239, 242 (1985), quoting Assessors of Brockton v. Brockton Olympia Realty Co., 322 Mass. 355 (1948). These standard definitions form the basis for this Directive.

The Supreme Judicial Court reasoned in S.J. Groves that the separate inclusion of " materials, tools and fuels" on the one hand in § 6(r) and of " machinery and replacement parts" on the other hand in § 6(s), set up a bright line distinction between what may be regarded as machinery and materials, that is, that materials should not include machinery. From this distinction, the S.J.C. concluded in S.J. Groves that purchases of "equipment, tools, machinery and replacement parts" were not " building materials." However, since building materials and supplies includes rental charges for construction vehicles, equipment and machinery, the machinery, vehicles, and equipment that a contractor rents "specifically for use on the site of any such tax exempt project . . ." including those "used exclusively for the transportation of materials for any such tax exempt project" will be considered as exempt. However, the same distinction made in S.J. Groves that prevented machinery from being a part of building materials and supplies also applies to place tools in a fundamentally different qualitative category than "vehicles, equipment, and machinery," as those terms are used in G.L. c. 64H, § 6(f). Tools, therefore, whether purchased or rented, do not fall within the 6(f) exemption. The Department will determine on a case-by-case basis the line between non-exempt rented tools and exempt rented equipment. Generally, the Department will draw the line between tools and equipment by considering a tool to be any hand-held or hand-operated implement (including power-driven hand tools) and equipment to be any apparatus or machine which in either function or design is more complex in operation than a tool.

In order to support a claim of exemption for such rented vehicles, equipment and machinery, the taxpayer must keep records that will provide an audit trail showing that the items were rented specifically for use in a qualifying § 6(f) project, that they were expressly identified by the contract name, number, and awarding authority on the rental invoice, that they were actually used at one or more § 6(f) public works projects and were included in the contractor's payment requisition(s) to the contract awarding authority. To the extent that rented construction equipment (exclusive of tools) meets the prerequisites outlined above, the item will be regarded as exempt under section 6(f).

/s/ Alan LeBovidge
Alan LeBovidge
Commissioner of Revenue

AL:DMS:dt

December 23, 2002

DD 02-16