May 25, 1982
You inquire whether the following charges imposed by ********** ("Company") in connection with the proposed Massachusetts sale and rental of mobile telephones and paging units are subject to tax:
(1) charges characterized by the Company as sale or rental charges;
(2) charges imposed by the Company for insuring telephones and paging units (the proceeds of such insurance are payable to the Company);
(3) base service charges for use of the Company's communications system (the equipment sold or rented will not function unless it is connected to the Company's system);
(4) additional service charges for long distance calls and calls in excess of a stated number per month; and
(5) charges for reconnection to the Company's communications system after termination for non-payment of bills.
It is assumed for purposes of this ruling that the Company's sale and rental charges are set in good faith for business purposes and not to understate the amounts subject to tax.
Massachusetts General Laws Chapter 64H, Section 2 imposes an excise on sales at retail of tangible personal property in Massachusetts. Chapter 64I, Section 2 imposes the use tax on the storage, use or other consumption in Massachusetts of tangible personal property purchased for storage, use or other consumption in Massachusetts.
Professional, insurance or personal service transactions which involve no sale or which involve sales as inconsequential elements for which no separate charges are made are not subject to the sales or use tax (G.L. c. 64H, s. 1(13)(c)).
In determining the sales price of property on which the sales or use tax is based, no deduction is allowed for the cost of materials used, labor or service cost, interest charges, losses or other expenses (G.L. c. 64H, s. 1(14)(a)(ii)), but the amount charged for labor or services rendered in installing or applying the property sold is excluded (G.L. c. 64H, s. 1(14)(c)(iii)).
Chapter 64H, Section 6(i) exempts from tax "[t]he sales, furnishing or service of gas, water, electricity, steam, telephone and telegraph;" this exemption applies to telephone service but not to the sale or rental of telephone equipment ( Chayet v. Commissioner of Corporations and Taxation, 367 Mass. 908 (1975)).
Based on the foregoing, it is ruled that:
1. The charges characterized by the Company as sale or rental charges for mobile telephones and paging units are subject to the sales or use tax; the sales price of telephones and pacing units also includes the charges imposed by the Company for insuring the items.
2. The sales and use taxes do not apply to the Company's base service charges for use of its communications system, its additional charges for long distance calls and excess calls, or its charges for reconnection after termination of service.
Very truly yours,
/s/L. Joyce Hampers
L. Joyce Hampers
Commissioner of Revenue