April 12, 1983

You inquire whether the sale of step-down transformers and emergency generators to the owner of a commercial or residential building is subject to the Massachusetts sales or use tax in the circumstances described herein.

The owner of a building purchases a transformer and has it installed in the building because he purchases electricity from the local utility at a high voltage. The transformer reduces the voltage of the electricity passing through it to the proper voltage for use by the building's tenants.

An emergency generator is purchased by the owner of a building and installed therein to supply power for the operation of elevators, water pumps, emergency lights and alarms in the event of an interruption of regular electric service.

Sales of machinery or replacement parts thereof used "directly and exclusively...in the furnishing of gas, water, steam or electricity when delivered to consumers through mains, lines, or pipes" are exempt from the Massachusetts sales and use taxes (G.L. c. 64H, § 6(s); G.L. c. 64I, § 7(b)). This exemption applies to qualifying purchases of machinery by suppliers of electricity to consumers; it does not apply to machinery purchased by a consumer.

Based on the foregoing, it is ruled that the sale of transformers and emergency generators to the owner of a commercial or residential building is subject to the sales or use tax, unless the transformers and generators are to be used exclusively to provide electricity to be sold to the building's tenants.

You also inquire whether the installation and use of the transformers and generators subjects the owner of the building to the Massachusetts excise on utility corporations.

Every utility corporation doing business in Massachusetts must annually pay a tax on its corporate franchise (G.L. c. 63, § 52A).

"Utility corporation" includes every incorporated electric company subject to General Laws Chapter 164, and every foreign corporation not subject to Chapter 164 which does an electric business in Massachusetts and which has been subject to taxation prior to January 1, 1952 under Chapter 63, §§ 53 to 60 (G.L. c. 63, § 52A(1)(a)).

"Electric company" is generally defined in Chapter 164 as "a corporation organized under the laws of the commonwealth for the purpose of making...and selling, or distributing and selling, electricity within the commonwealth, or authorized by special act so to do..." (G.L. c. 164, § 1).

Based on the foregoing, it is ruled that the installation and use of transformers and emergency generators in a commercial or residential building does not subject a corporate owner of the building to the Massachusetts excise on utility corporations.

Very truly yours,

/s/Ira A. Jackson

Ira A. Jackson
Commissioner of Revenue

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LR 83-25