Introduction: DD 02-17 announced that the Department would no longer allow "vendor credits" on audit for sales/use tax incorrectly paid by a taxpayer to its vendor on items exempt from tax. This directive announces that the Department will no longer allow vendor credits for sales tax incorrectly paid by a taxpayer to its vendor on items that were later resold. This directive supersedes any prior public written statements or other documents such as forms or instructions published by the Department to the extent that they permitted a vendor to deduct the cost of tangible personal property on which it paid tax but later resold from its gross receipts as an adjustment on its next sales tax return. These public written statements include, but are not limited to 830 CMR 64H.1.1(5)(g), 830 CMR 64H.1.3(7)(c)3, LR 80-17, and Emergency Regulation No. 12. The regulations currently in effect will be amended in the near future to reflect this change in policy.

Issue: If a taxpayer under audit by the Department of Revenue agrees to extend the statute of limitations for making an assessment pursuant to G.L. c. 62C, § 27, may a taxpayer seek a "vendor credit" for sales/use tax paid on items that were later resold that would otherwise be outside its vendors' statutes of limitations for an abatement under G.L. c. 62C, § 37?

Directive: Taxpayers under audit by the Department will no longer be granted a "vendor credit" adjustment for sales/use tax paid on items that were later resold against amounts of additional tax liability which may be assessed in the pending audit. Taxpayers that have paid sales/use tax on items that were later resold should seek a refund from the vendor to whom they paid the tax. The vendor may request an abatement by filing Form CA-6 with the Department's Customer Service Bureau within the time limitations contained in G.L. c. 62C, § 37. An agreed upon extension of the statute of limitations for making an assessment against a taxpayer under audit pursuant to G.L. c. 62C, § 27 does not extend the time period in G.L. c. 62C, § 37 during which its vendor must file an abatement claim for sales/use taxes collected from that taxpayer.

Discussion: The Commissioner of Revenue will prospectively discontinue the practice whereby tax credits (so-called "vendor credits") are allowed to taxpayers under audit for substantiated overpayments of Massachusetts sales/use taxes on items that were later resold, but are otherwise outside the statute of limitations for abatements contained in G.L. c. 62C, § 37. The reason is the same as previously announced in DD 02-17. Uniform administration of the tax laws requires all taxpayers to protect their claims of overpaid taxes in the same manner, i.e., by filing an application for abatement, pursuant to G.L. c. 62C, § 37 and 830 CMR 62C.37.1.

Effective Date: Vendor credits for sales or use tax paid on items resold will not be available with respect to any sales or use tax paid to a vendor on or after January 1, 2001. Properly substantiated vendor credits pertaining to tax paid to a vendor prior to January 1, 2001 on items later resold will be allowed in pending audits, provided the taxpayer has agreed to extend the statute of limitations for making an assessment pursuant to G.L. c. 62C, § 27.

/s/Alan LeBovidge
Alan LeBovidge
Commissioner of Revenue

AL:LEM:ecl

August 29, 2003

DD 03-9