March 20, 1985

You have requested a ruling concerning the application of the Massachusetts sales tax to purchases of certain telecommunications equipment by __________ ("Company"). The Company will purchase equipment to establish a switching site in a Massachusetts city for long distance telephone service. Additional electronic components and telephone lines will be purchased to link the switch to the rest of the Company's long distance telephone system.

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 a complementary use tax on the storage, use, or other consumption in Massachusetts of tangible personal property purchased for storage, use, or other consumption in Massachusetts. Sales upon which the sales tax has already been collected are exempt from the use tax. (G.L. c. 64I, § 7(a)).

In determining the sales price 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, § 1(14)(a)(ii); G.L. c. 64I, § 1(1)), but the amount charged for labor or services rendered in installing or applying the property sold is excluded. (G.L. c. 64H, § 1(14)(c)(iii); G.L. c. 64I, § 1(1).

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 equipment used in the furnishing of telephone services.

The telecommunications equipment used by the Company to establish and link its switching site is telephone equipment as distinguished from telephone service. Therefore, the Company's purchases are subject to Massachusetts sales or use tax. See Letter Ruling 82-60.

Very truly yours,

/s/Ira A. Jackson

Ira A. Jackson

Commissioner of Revenue

IAJ:JES:mg

LR 85-41