July 31, 1979

You have requested a certificate of exemption from Massachusetts Sales and Use Taxes for your company on materials and supplies bought for and used in performing functions for the federal Medicare program under an agreement with the Secretary of the United States Department of Health, Education, and Welfare (HEW).

[A, Inc.] is an insurance carrier which functions in part as a fiscal intermediary pursuant to Title XVIII of the Social Security Act, 42 U.S.C. §§1395-1395rr, which allows the Secretary of HEW to designate a public or private agency or organization to make payments to providers of Medicare services. Under your contract, you are authorized to make purchases necessary to carry out your duties of receiving, disbursing and accounting for Medicare funds.

Massachusetts General Laws Chapter 64H, Section 6(d) exempts from tax "[s]ales to the United States . . . or [its]. . . agencies." Sales to your company in its capacity as fiscal intermediary are subject to the sales and use tax unless the United States or one of its agencies is the actual "purchaser" of otherwise taxable property.

The United States would be the purchaser of materials and supplies bought by your company as fiscal intermediary if under your contract and in practice, title to, responsibility for payment for, and control over those materials and supplies vest in the federal government. Compare Kern-Limerick v. Scurlock, 347 U.S. 110 (1954) with Alabama v. King and Boozer, 314 U.S. 1 (1941). Economic impact on the federal government alone does not immunize from tax those who furnish it with supplies. Accord, Federal Reserve Bank of Boston v. Commissioner of Corporations and Taxation of Massachusetts, 520 F. 2d 221 (1st Cir. 1975). It is understood that discretion over, responsibility for payment for, and title to purchases for the administration of Medicare remain in your company. The United States is not the actual purchaser of these materials and supplies.

Your company, as purchaser, would be an agency of the United States under Massachusetts law only if it were a regularly constituted department of government or a wholly owned governmental entity exercising exclusively governmental functions. See First Agricultural National Bank v. State Tax Commission, 353 Mass. 172 1967 (reserved on other grounds, 392 U.S. 339 (1968)). But [A, Inc.] does not fit into either category. Moreover, since medical service providers have voluntarily selected your company from among many potential intermediaries and instead of the Secretary himself as the dispenser of Medicare funds, your company cannot be said to perform those functions "indispensable to the workings" of a governmental unit which have qualified other organizations for tax exemption as federal agencies or instrumentalities. See Department of Employment v. United States, 385 U.S. 355, 359 (1966).

Even if [A, Inc.] is a governmental agent for limited purposes, it is not a governmental agency within the meaning of General Laws Chapter 64H, Section 6(d).

For the foregoing reasons, it is ruled that an insurance carrier is not exempt under General Laws Chapter 64H, Section 6(d) from Massachusetts Sales and Use Taxes imposed on purchases of materials and supplies used in performing its duties as fiscal intermediary of the federal Medicare program and therefore is not entitled to an exemption certificate from the Commissioner.

Very truly yours,

/s/L. Joyce Hampers

L. Joyce Hampers
Commissioner of Revenue

LJH/PAG/jmp

LR 79-22