May 5, 1980

********** (the "Company") produces, sells and services industrial automation equipment and related computer software. In connection with its sales, the Company offers customers three optional contracts--a standard maintenance agreement, a full-service maintenance agreement and a consulting agreement. Customers are not obligated to sign any of the three contracts.

Under the maintenance contracts, charges are based on a percentage of the list price of equipment installed, with certain modifications. Under short-term consulting contracts, charges are based on hourly rates plus the cost of transportation and lodging for the Company's employees; under long-term consulting contracts, a fixed charge applies. Billing under all three contracts is on a monthly basis.

You inquire whether charges under the optional maintenance and consulting contracts are subject to sales tax.

Massachusetts General Laws Chapter 64H, Section 1(13)(c) provides that, for purposes of the sales tax, "sale at retail" does not include "professional… or personal service transactions which involve no sale or which involve sales as inconsequential elements for which no separate charges are made." On the other hand, Chapter 64H, Section (1)(14)(b)(i) declares that any amount paid for any services that are a part of the sale of tangible personal property are included in the "sale price" of the property to which tax applies.

Based on the foregoing, it is ruled that charges under the optional maintenance and consulting contracts are not subject to tax. However, if the Company purchases parts, materials or other tangible personal property for use under the contracts, it must pay a tax upon such purchases. Moreover, it must collect the sales tax on any tangible personal property which the maintenance and consultation contracts do not include and for which it makes a separate charge. This is true even if the Company pays the sales tax when it purchases the property; in this case, it may deduct the cost of the property to it from gross sales as an adjustment on its next sales tax return.

Very truly yours,

/s/L. Joyce Hampers

L. Joyce Hampers
Commissioner of Revenue

LJH/JXD/jmcd

LR 80-17