July 15, 1981

You inquire whether Massachusetts purchases by the ********** ("Contractor") pursuant to an agreement with the United States Energy Research and Development Administration ("Agency"), now the Department of Energy, are exempt from Massachusetts sales taxation.

The Agency is a regularly constituted department of the U.S. Government. The Contractor is a division of a non-profit corporation. The agreement between them requires the Contractor to construct, maintain and operate scientific research and development facilities ("Institute") for the Agency, and authorizes it to acquire property, subject to the following conditions:

(1) Whenever approval or other action by the Agency or the U.S. Government's Contracting Officer is required with respect to any expenditure or commitment by the Contractor under the terms of the agreement, the Government is not responsible therefor unless and until such approval or action is obtained or taken.

(2) Payment must be made from a special bank account or accounts, consisting of advances of federal government funds and revenues received in the performance of the contractual work. Title to these monies remains in the U.S. Government; the Contractor acquires only the right to make authorized expenditures therefrom.

(3) Except as otherwise directed by the Agency, title to all tangible personal property of every kind and description purchased pursuant to the agreement passes directly from the vendor to the U.S. Government and not to the Contractor.

(4) Title to all U.S. Government-owned property in the care, custody or possession of the Contractor in connection with the performance of the agreement remains vested in the U.S. Government through-out the term of the agreement, except that the Contractor must make such disposition of the property as the Contracting Officer directs, and the Contractor may sell or exchange such property or acquire its fair value with the approval of the Contracting Officer.

(5) To the extent directed by the Contracting Officer, the Contractor must mark or segregate government property in such a way as to indicate U.S. Government ownership.

(6) The Contractor is not liable for loss or destruction of or damage to U.S. Government property in its possession unless the loss or destruction is due to willful misconduct or bad faith on the part of the Contractor's corporate officers, or the Contractor supervising representative fails to take all reasonable steps to comply with the Contracting Officer's appropriate written directives to safeguard the property.

(7) Government property must be used only for the performance of the agreement, except as otherwise agreed upon in writing by the Contractor and the Agency.

The standard purchase order (No. F-0-4935-1-M1) presented by the Contractor in connection with purchases under the agreement sets forth conditions consistent with those noted above. It states in part:

"It is understood and agreed that this Purchase Order is entered into by the Institute for and on behalf of the Government; that title to all supplies furnished hereunder by the Seller shall pass directly from the Seller to the Government at the point of delivery; that the Institute is authorized and will make payment hereunder from Government funds advanced or agreed to be advanced to it by [the Agency], and administer this Purchase Order unless otherwise specifically provided for herein; that administration of this Purchase Order may be transferred from the Institute to the [Agency] or its designee, and in case [of] such transfer and notice thereof to the Seller the [Contractor] shall have no further responsibilities hereunder."

Massachusetts General Laws Chapter 64H, Section 6(d) exempts from taxation sales to the United States, the Commonwealth of Massachusetts or any political subdivision thereof, or their respective agencies. A purchaser is an "agency" for purposes of this provision only if it is a regularly constituted department of government or an entity wholly owned by the government and exercising exclusively governmental functions. First Agricultural National Bank v. State Tax Commission, 353 Mass. 172 (1967) (reversed on other grounds, 392 U.S. 339 (1968)).

In determining whether purchases pursuant to a U.S. Government contract are purchases by the contractor or purchases by the United States through the contractor as its agent, the key factor is whether the credit of the contractor or that of the United States is bound under the governing agreements (compare Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110 (1954) and Alabama v. King & Boozer, 314 U.S. 1 (1941)). If state taxation is to be precluded, an executive agency must clearly manifest the principal-agent relationship with all its ramifications, and the decision to create the agency relationship must be unequivocally expressed in all relevant documents. United States v. New Mexico, 624 F.2d 111 (10th Cir. 1980), Cert. granted, No. 80-702 U.S.L.W. 3617 February 23, 1981.

General Laws Chapter 64H, Section 6(e) provides that the sales tax does not apply to:

"[s]ales to any corporation, foundation, organization or institution, which is exempt from taxation under the provisions of section five hundred and one (c)(3) of the Federal Internal Revenue Code, as amended, and in effect for the applicable period; provided, however, that such sales shall not be exempt unless (1) the tangible personal property which is the subject of such sales is used in the conduct of such religious, charitable, educational or scientific enterprise, (2) such corporation, foundation, organization or institution shall have first obtained a certification from the commissioner stating that it is entitled to such exemption, and (3) the vendor keeps a record of the sales price of each such separate sale, the name of the purchaser, the date of each such separate sale, and the number of such certificate."

Under Division 8(f) of State Tax Administration Regulation 62C.24 ("Record Retention"), the vendor must also retain for each sale a description of each item sold and a record of the purchaser's address; moreover, every holder of a certificate of exemption must retain record of each purchase made under the certificate, including the certificate itself, a description of each item purchased, the name and address of the vendor, the cost of the item and the date of the purchase.

Based on the foregoing, it is ruled that:

(1) sales to the Contractor pursuant to the agreement with the Agency are not exempt as sales to the United States Government; but

(2) such sales are exempt from the sales tax if (a) the corporation of which the Contractor is a part is exempt from federal taxation under Internal Revenue Code Section 501(c)(3); (b) the corporation has first obtained a certification from the Commissioner (State Tax Form ST-2) stating that it is entitled to such exemption; and (c) the Contractor and the vendors keep the records required under Section 6(e) and Regulation 62C.24.

Very truly yours,

/s/L. Joyce Hampers

L. Joyce Hampers

Commissioner of Revenue

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LR 81-58