September 16, 1981

You inquire whether the Massachusetts sales tax applies to purchases by ********** ("Company") of parts and materials for an aircraft owned by the Company and used exclusively in research that the Company conducts under contracts with the United States Navy, the National Aeronautics and Space Administration, and other agencies of the United States Government. The Company purchases the parts and materials in its own name and on its own credit, not as agent for the U.S. Government or any of its agencies. The Company does not contend that it is a "research and development corporation" within the meaning of Sections 38C or 42B of Massachusetts General Laws Chapter 63.

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)).

Section 6(a) of Chapter 64H provides that sales which the Commonwealth is prohibited from taxing under the Constitution or laws of the United States are exempt from the sales tax. Purchases made by a contractor pursuant to a U.S. Government contract are not constitutionally immune from state taxation, even though the economic impact of the tax on the U.S. Government may be the same as if the Government itself were the purchaser. Alabama v. King & Boozer, 314 U.S. 1 (1941); see United States v. New Mexico, 624 F.2d 111 (10 th Cir. 1980), cert. granted, No. 80-702, 49 U.S.L.W. 3617 February 23, 1981.

Based on the foregoing, it is ruled that the Company's purchases of parts and materials for an aircraft used in research conducted under contracts with agencies of the U.S. Government are subject to tax.

Very truly yours

/s/L. Joyce Hampers

L. Joyce Hampers
Commissioner of Revenue

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LR 81-86