April 9, 1982

*********** ("Company"), a Massachusetts registered vendor, leased a machine to a customer ("Customer") under an agreement giving the Customer a purchase option. At the beginning of the lease term the Customer, which does business only in New Hampshire, picked the machine up at the Company's Massachusetts business premises and transported it to New Hampshire for use thereafter solely in New Hampshire. After leasing the machine for two months, the Customer intends to exercise the purchase option. You inquire whether the Massachusetts sales or use tax will apply to the Customer's exercise of the purchase option on the machine.

The Massachusetts sales tax is an excise on sales at retail of tangible personal property in Massachusetts (G.L. c. 64H, s. 2).

"Sale" includes

"[a]ny transfer of title or possession, or both, ...lease, rental, conditional or otherwise, of tangible personal property for a consideration, in any manner or by any means whatsoever"

(G.L. c. 64H, s. 1(12)(a)).

Retail sales subject to tax do not include sales

"in which the only transaction in the commonwealth is the mere execution of the contract of sale and in which the tangible personal property sold is not in the commonwealth at the time of such execution" (G.L. c. 64H, s. 1(13)(d)).

Also exempt are sales of tangible personal property which the vendor is obligated under the terms of any agreement to deliver

(1) to a purchaser outside Massachusetts or to a designee outside Massachusetts of a purchaser outside Massachusetts; or

(2) to an interstate carrier for delivery to a purchaser outside Massachusetts or to a designee outside Massachusetts of a purchaser outside Massachusetts (G.L. c. 64H, s. 6(b)).

Based on the foregoing, it is ruled that the sales tax will apply to the exercise of the purchase option on property which was leased in Massachusetts but which will be outside Massachusetts when the option is exercised.

Very truly yours,

/s/L. Joyce Hampers

L. Joyce Hampers
Commissioner of Revenue

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LR 82-35