January 31, 1985

You request a ruling as to the application of the Massachusetts sales tax to late charges and membership fees which will be charged by your client who wishes to operate a video movie store.

(1) You inquire whether your client would be required to collect a Massachusetts sales tax on the amount charged for late returns of rented video movies.

Massachusetts General Laws Chapter 64H, Section 1(13) defines retail sale as a sale of tangible personal property for any purpose other than resale in the regular course of business. For Massachusetts sales tax purposes, "sale" includes "[a]ny transfer of title or possession,…lease, rental, conditional or otherwise, of tangible personal property." (G.L. c. 64H, § 1(12)(a)).

In determining the sales price upon which the sales tax is based, Massachusetts General Laws Chapter 64H, Section 1(14)(a) provides that "no deduction shall be taken on account of…interest charges, losses or other expenses." Therefore, any late charge imposed by your client is included in the sales price of the video movie rental and is subject to the Massachusetts sales tax.

(2) You inquire whether the membership fees paid by customers to your client are subject to the Massachusetts sales tax.

Massachusetts General Laws Chapter 64H, Section 1(12)(a) includes in the definition of sale, "…any lease, rental, conditional or otherwise, of tangible personal property for a consideration, in any manner or by any means whatsoever." (G.L. c. 64H, § 1(12)(a)). "Sales price" is the total amount paid by a purchaser to a vendor as consideration for a retail sale, valued in money or otherwise. (G.L. c. 64H, § 1(14)).

The membership fee is the "otherwise" in this definition of sales price and is part of the total consideration for the retail sale even though the fee is paid prior to any movie rental. The membership charge serves as a type of prepayment, resulting in a reduced daily rate at the time of the movie rental.


Therefore, the amount charged for the membership fee is subject to the Massachusetts sales tax which may either be imposed at the time of the sale of the membership or amortized in the form of a sales tax on the rate discount each time a rental occurs, up to the value paid for the membership.

Very truly yours,

/s/Ira A. Jackson

Ira A. Jackson

Commissioner of Revenue

IAJ:VGS:loc

LR 85-9