Introduction:

This directive announces a change in policy regarding refunds of Massachusetts sales tax following rescissions of contracts for the sale of motor vehicles. This Directive applies only to rescissions of contracts for the sale of motor vehicles, and not other types of taxable tangible personal property or services. The Directive supersedes and revokes any prior public written statements to the extent they are inconsistent, and applies to open abatement claims that are within the time limitations of G.L. c. 62C, § 37.

Issue 1:

When a purchaser of a motor vehicle returns a vehicle to the dealer, is the purchaser entitled to a refund of sales tax paid to the Registry of Motor Vehicles?

Directive 1:

The purchaser is entitled to an abatement of the sales tax if the vehicle is returned within 180 days of the date of the sale and the entire purchase price is refunded by the dealer, less the dealer's established handling fee, if any. The handling fee must be reasonable, may be a flat fee or a percentage of the sales price, and may be established by the dealer's customary policy or by written contract.

Issue 2:

Is an additional deduction by the dealer for a mileage charge allowed as a "vendor's established handling fee"?

Directive 2:

A mileage charge is not a vendor's established handling fee. However, the imposition of a reasonable mileage charge will not preclude the return of a vehicle as being treated as a rescission for sales tax purposes, providing the other statutory criteria are met. The mileage charge will be treated as a charge for the rental or lease of the motor vehicle and as a new transaction subject to sales tax. The tax imposed on the mileage charge will be deducted from the amount of tax abated to the purchaser by the Department relating to the rescission.

Discussion of Law:

Massachusetts imposes a sales tax on sales of tangible personal property by any vendor in Massachusetts at a rate of five percent of the vendor's gross receipts, defined as the total sales price received by a vendor as consideration for a retail sale. G.L. c. 64H, § 2. "Sales price" is defined as the total amount paid by a purchaser to a vendor as consideration for a retail sale, valued in money or otherwise. G.L. c. 64H, § 1.

In determining the "sales price" upon which the sales tax is based, there is an exclusion for the amount charged by the vendor for property that is returned by the purchaser to the vendor upon rescission of a contract of sale, when the entire amount charged, less the vendor's established handling fee, if any, is refunded either in cash or credit. There is also a requirement that the property be returned within 90 days (180 days in the case of a motor vehicle) from the date of sale. See G.L. c. 64H, § 1, "sales price," at (c)(ii). Under this provision, a purchaser may obtain a full refund of the sales tax on returned merchandise even if the vendor charges or retains a handling fee covering the vendor's handling, restocking or similar administrative costs, provided such fee is reasonable. A handling fee may be established by the dealer's customary policy or by written contract.

If rescission of the contract and return of the vehicle are accompanied by a deduction for a mileage fee or a similar charge associated with the use of the vehicle, the Commissioner will treat such fees as the commercial equivalent of a charge for the rental or use of a motor vehicle, subject to sales tax. A "sale" includes a transfer of title or possession, or both, exchange, barter, lease, rental, conditional or otherwise, of tangible personal property or the performance of services for a consideration. G.L. c. 64H, § 1, "sale." Imposition of a reasonable mileage charge by the dealer in addition to an established handling fee will not preclude the return of a motor vehicle from being treated as a rescission for sales tax purposes. However, the tax due on mileage charges will be subtracted from any abatement, as illustrated by the example below.

For purposes of this Directive, it does not matter whether the dealer voluntarily agrees to rescission of the contract, or return of the vehicle is made pursuant to the provisions of the Massachusetts "Lemon Law," G.L. c. 90, § 7N ½. However, to the extent that the purchaser has been reimbursed for sales tax pursuant to the Lemon Law, the purchaser is not entitled to an abatement of tax under G.L. c. 62C, § 37.

Example:

A customer purchases a new motor vehicle from a dealer for $25,000 and pays $1,250 in Massachusetts sales tax to the Registry of Motor Vehicles at the time the vehicle is titled and registered. The customer and dealer agree to a rescission of the contract of sale and the vehicle, which has been driven 2,000 miles since the date of sale, is returned to the dealer within 180 days of the date of the sale. The contract of sale provides that, in the event of a rescission, the dealer may deduct a $.30 per mile fee based on the mileage of the vehicle, and may also deduct a handling fee of $500.00. The fee based on mileage is a taxable charge for the rental of the motor vehicle. Accordingly, the $600.00 rental charge is subject to sales tax. The customer is entitled to a sales tax abatement of $1220 ($25,000 x .05 - $600 x .05) provided that the customer timely files a properly substantiated abatement application (Form CA-6).

/s/Alan LeBovidge
Alan LeBovidge
Commissioner of Revenue

AL:ECL:jlr:wrd

October 31, 2006

DD 06-4