July 11, 1980

Your client as lessor leases computer equipment under an agreement requiring the lessee to pay local property taxes on the equipment directly to a taxing authority. The tax payments do not pass through the hands of the lessor. You do not state whether the property taxes are assessed against the lessor or the lessee. You inquire whether such local property tax payments are subject to the Massachusetts sales tax.

Massachusetts General Laws Chapter 64H, Section 2 imposes the sales tax at the rate of five per cent of a vendor's gross receipts. "Gross receipts" is defined in Chapter 64H, Section 1(6) as "the total sales price received by vendors as a consideration for retail sales."

Chapter 59, Section 18(2) provides that all tangible personal property within the Commonwealth leased for profit, or, in the case of domestic business and foreign corporations, machinery used in the conduct of their business, shall be assessed where such machinery or tangible personal property is situated to the owner or any person having possession of it. However, Section 5(16)(2) of Chapter 59 exempts from local taxation in the case of a domestic business or foreign corporation, all property owned by such corporation other than "real estate, poles, underground conduits, wires, and pipes, and machinery used in the conduct of the business, which term, as used in this clause, shall not be deemed to include stock in trade..." Office equipment leased by a domestic business or foreign corporation in the business of leasing such equipment is "stock in trade" exempt from local taxes assessed against the lessor. New England Mutual Life Insurance Co. v. City of Boston, 321 Mass. 683 (1947).

Based on the foregoing, it is ruled that local property taxes assessed against the lessee and paid directly by the lessee to the taxing authority are not subject to the sales tax; any local property taxes assessed against the lessor would be part of the total sales price subject to the tax even if paid directly by the lessee to the taxing authority.

As stated in our letter to you dated April 16, 1980 (Letter Ruling 80-16), charges for local property tax reimbursement are subject to tax. I am aware of no pending legislation or court cases that would change this result.

Very truly yours,

/s/L. Joyce Hampers

L. Joyce Hampers
Commissioner of Revenue

LJH/JXD/jmcd

LR 80-49