January 31, 1985

In your letter __________ you ask whether certain electronic equipment which __________ ("Company") uses in its communications service to customers is exempt from the personal property tax imposed by G.L. c. 59, § 2. Specifically, you ask whether the microprocessor based switches and concentrators which are located in the Company's Massachusetts facilities, and are used to provide access, concentration and switching within its communications network, are exempt from the personal property tax under G.L. c. 59, § 5 Sixteenth (b)(2).

The Company is a foreign corporation operating a __________ public information data network which provides data communications services to its customers. This telecommunications system is designed to provide customers with end-to-end communications from a single source without the responsibility for network control and management. The system employs microprocessor based switches and concentrators to provide user access, concentration, and/or switching. It is operated through switching centers which are located throughout the continental United States.

The system supports an assortment of user devices and allows the interconnection of a variety of asynchronous and synchronous terminal devices and computers. The communications technology used to operate the network is known as packet switching. The user's data is segmented into packets and these packets are then forwarded through the network by the use of switches and concentrators at the switching offices.

The taxpayer maintains different offices or switching centers in the Commonwealth which, based upon the particular functions performed therein, it designates as Class __________, and __________ centers.

Class __________ centers contain microprocessor based switches and concentrators connecting wideband, communication lines or satellite links leased from telephone companies, satellite companies and specialized common carriers. These switching centers form the backbone of the network.

Class __________ centers contain microprocessor based switches and concentrators providing access to the backbone network by concentrating traffic into Class __________ offices.

Class ___________ centers contain only microprocessor based concentrators. The concentrators can be connected to the nearest Class __________ or Class ___________ office. No switching equipment is present in Class ___________ offices.

Massachusetts General Laws, Chapter 59, Section 2 provides in part that, "All property, real and personal, situated within the Commonwealth...unless expressly exempt, shall be subject to taxation". General Laws, Chapter 59, Section 5, Sixteenth (2)(b) says that all property owned by a foreign corporation is exempt from local taxation except for real estate, poles, underground conduits, wires and pipes, and machinery used in the conduct of the business. The term "machinery" as used in that section, does not include stock in trade or any personal property directly used in any purchasing, selling, accounting or administrative functions. G.L. c. 59, § 5, Sixteenth (2)(b)

Stock in trade refers to "...a taxpayer's inventory of machines available for sale or lease." City of Boston v. Mac-Gray Co., Inc., 371 Mass. 825, 827 (1977). The exemption pertaining to "...property directly used in any purchasing, selling, accounting or administrative function" is directed towards calculators, adding machines, cash registers, and similar such items. Ultronic Systems Corp. v. Board of Assessors of Boston, 355 Mass. 284, 288 (1969).

In the Ultronics case, the Supreme Judicial Court held that a computer drum owned by a taxpayer engaged in the business of leasing electrical mechanical devices to subscribers and providing them with information transmitted to the leased machinery was neither stock in trade nor property directly used in purchasing, selling, or administrative functions. Id. at 277-288.

Computer related equipment owned for the purpose of providing information over telecommunication lines is taxable under G.L. c. 59, § 2. L.R. 81-41.

The microprocessor based switches and concentrators used by the Company in connection with its trade or business of distributing information by means of a telecommunications system are not exempt from local taxation under G.L. c. 59, § 5 Sixteenth (2)(b).

Very truly yours,

/s/Ira A. Jackson

Ira A. Jackson
Commissioner of Revenue

IAJ:HMP:loc

LR 85-11