March 29, 1982

********** ("Airline") uses a computerized reservations and ticketing system. Travel agencies lease the system from the Airline and use it to directly reserve seats and print tickets for flights on the Airline and over 200 other airlines, as well as to reserve hotel rooms and arrange car rentals.

You ask whether the following charges imposed by the Airline upon travel agencies in connection with their use of the system and its by-products are subject to the Massachusetts sales and use taxes:

(1) A fixed monthly charge for equipment placed in an agency, namely, terminal processing units, terminal access units, printers and modems (the modems modulate and demodulate signals so that digital data can be transmitted in analog form over telephone lines).

(2) A fixed monthly charge for maintenance of equipment. The maintenance services are provided by the Airline on a mandatory basis; that is, an agency does not have the option to lease the equipment without the maintenance services.

(3) Variable charges for use of the Airline's central reservation computer in Colorado (agencies' employees do not operate the computer or direct and control its operation while on the premises where the computer is located).

(4) A single, fixed monthly charge for the equipment, maintenance and central system usage referred to in items (1) through (3).

(5) A variable data processing charge for "ticket images transmitted" and "itinerary images transmitted." The Airline's central computer processes reservations data transmitted by an agency and "reformats" it into a print image of a ticket or itinerary. This image is transmitted back to the agency, where it is printed, using the agency's own paper stock and equipment.

(6) A variable data processing charge for creation and transmission of a "machinable interface record." The Airline's central computer produces the record and sends it via telephone lines (without the use of a tangible medium) to a mini-computer at an agency; the mini-computer uses the record to print a ticket, an itinerary, or both.

(7) A variable monthly charge for storage of data in the Airline's central computer. The charge is based on the number of records stored; there is no additional charge if an agency chooses to display or print the stored data on its own premises.

(8) A fixed monthly charge for rental and maintenance of an automated accounting, reporting and management service system for travel agencies, consisting of a mini-computer and software. It is assumed that the maintenance services are provided on a mandatory basis as part of the lease of the mini-computer, and that the software is provided on a mandatory basis or comprises programs transferred in tangible, machine-readable form.

(9) Separately-stated charges for installation, removal and relocation of equipment, provided on a mandatory basis.

The Massachusetts sales tax is an excise imposed on sales at retail of tangible personal property in Massachusetts by any vendor (G.L. c. 64H, s. 2). The complementary use tax is an excise on the storage, use or other consumption in Massachusetts of tangible personal property purchased for storage, use or other consumption in Massachusetts (G.L. c. 64I, s. 2). Leases and rentals are "sales" and "purchases" for sales and use tax purposes (G.L. c. 64H, s. 1(12)(a); c. 64I, s. 1(1), (2)(a)).

The Department of Revenue's Sales and Use Tax Regulation on Automatic Data Processing (830 CMR 64H.06) provides in Subsection (5) that

"[a] transaction whereby a person secures access, by means of telephone or other lines, to equipment not on his premises, is not subject to tax if the person or his employees do not operate the equipment or direct and control its operation while on the premises where the equipment is located. However, the sale or lease of a computer terminal generally is subject to tax, even if the terminal is to be used by a customer on his premises in connection with remote processing activities not themselves taxable."

The regulation further provides in Subsection (6) that sales of programs recorded on tangible, machine-readable media are subject to tax, whether the programs are prewritten or custom. Charges for data processing output are subject to tax only when the output is transferred to the purchaser in tangible, machine-readable form (830 CMR 64H.06(11)).

The sales price of tangible personal property on which the sales and use taxes are based includes the amount paid for any services that are a part of a sale (G.L. c. 64H, s. 1(14)(b)(i)). For example, where maintenance services are provided on a mandatory basis to those who purchase data processing equipment as an inseparable part of the sale or lease of the equipment, charges for the furnishing of the are subject to tax whether the charges are separately stated or not ( see 830 CMR 64H.06(3)).

On the other hand, separately-stated charges for installation of tangible personal property, or for transportation of tangible personal property after its sale, are not included in the sales price (G.L. c. 64H, s. 1(14)(c)(iii), (v)).

Based on the foregoing, it is ruled that:

1. The fixed monthly charge for equipment is subject to tax.

2. The fixed monthly charge for maintenance of equipment provided on a mandatory basis is subject to tax.

3. Variable charges for use of the Airline's central computer, where the agency's employees do not operate the computer or direct and control its operation while on the premises where the computer is located, are not subject to tax.

4. The single, fixed monthly charge for equipment, maintenance and central system usage is subject to tax.

5. The variable data processing charge for "ticket images transmitted" and for "itinerary images transmitted" is not subject to tax.

6. The variable data processing charge for creation and transmission by telephone lines of a "machinable interface record" is not subject to tax.

7. The variable monthly charge for storage of data in the Airline's central computer is not subject to tax.

8. The fixed monthly charge for rental and maintenance of the mini-computer and software is subject to tax.

9. Separately-stated charges for installation or for relocation of equipment are not subject to tax; the sales price of leased equipment does include amounts representing the cost of removal provided on a mandatory basis, whether or not such amounts are separately stated.

You also inquire whether taxes on the transactions described above should be reported as sales or use taxes. With respect to the questions you raise in your letter, the reporting responsibilities of a registered Massachusetts vendor under the sales and the use taxes are identical. There is no need to distinguish between sales and use taxes on the sales and use tax return.

Very truly yours,

/s/L. Joyce Hampers

L. Joyce Hampers
Commissioner of Revenue

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LR 82-32