November 29, 1989

On behalf of ("the Company"), you ask whether the Company's charges for alterations to clothing are subject to the Massachusetts sales tax. You state the following facts.

Facts

The Company is a retailer of women's specialty and luxury clothing. The price of virtually all the garments the Company sells exceeds one hundred seventy-five dollars ($175.00). The Company collects a tax on sales of all merchandise sold at a cost over $175.00.

To accommodate its customers, the Company offers garment alteration services. About ninety percent (90%) of the Company's alterations are made to garments the Company itself sells. The remaining ten percent (10%) of the Company's alterations are made to garments purchased elsewhere.

When the Company alters its own merchandise, it bills the customer for the alteration service separately from the bill for the cost of the garment. According to the Company's policy, the customer must pay the full purchase price of the garment before the Company alters the garment. Company invoices state that all sales are final. The customer pays the separately stated charge for the alteration after the Company has completed the service and when the customer receives the garment. The Company keeps separate ledger accounts for garment sales and for alteration service.

The value of the thread, fabric, and notions the Company uses in altering a garment is less than ten percent of the total alteration charge. The Company does not separately state the price of these materials on bills for alterations. Primarily, the Company performs minor adjustments sought by the customer to achieve a correct fit of the garment. The alterations do not result in any substantial transformation of the form or style of the garment.

Discussion

The Massachusetts General Laws impose a tax on gross receipts from retail sales of tangible personal property in the Commonwealth. G.L. c. 64H, § 2. Gross receipts, or the sales price, includes amounts paid for services that are a part of the sale. Id. at § 1(6), (14)(b)(i). The statute excludes from taxable sales personal service transactions that involve either no sale or a sale as an inconsequential element of the transaction for which no separate charge is made. G.L. c. 64H, § 1(13)(c). An inconsequential sale is one having a value of less than ten percent (10%) of the total charge. 830 CMR 64H.1.1(1). A service transaction involving no sale or an inconsequential sale not separately stated is excluded from sales tax only where the real object of the transaction is the service itself. 830 CMR 64H.1.1(2)(a); see Houghton Mifflin Co. v. State Tax Comm'r, 373 Mass. 772, 774-75 (1977) (test is object of transaction).

You describe two situations in which the Company alters garments. In the first case you describe, a customer brings a garment purchased elsewhere to the Company for alterations to improve the fit of the garment. In this situation, the object of the transaction is the alteration service. As you state the facts, the cost of thread, fabric and notions used in such an alteration does not exceed ten percent of the total alteration charge and is thus an inconsequential element of the transaction. The Company does not separately state this cost on the bill to the customer. Furthermore, these materials are themselves exempt from the sales tax. See G.L. c. 64H, § 6(v). Under these circumstances, the Company's alteration of garments purchased elsewhere are personal service transactions not subject to the sales tax. See G.L. c. 64H, § 1(13)(c); 830 CMR 64H.1.1(2)(a)2.
In the second and more common situation, the Company alters a garment the Company itself has sold to a customer. Store policy requires the sale of a garment to be complete before the Company alters it. The customer has paid the full purchase price and the sale is final. The Company uses separate invoices for alteration charges and sales charges. Because the sale is complete, the alteration of merchandise the Company has sold is not taxable as a service that is part of the sale. See G.L. c. 64H, § 14(b)(i).

As in the first case, the object of this transaction is also the alteration of the garment. The value of any thread, fabric, or notions transferred in the alteration is inconsequential in comparison to the cost of the service, and the materials themselves are exempt from the sales tax. For these reasons, the Company's alterations of merchandise the Company has sold are not subject to the sales tax as personal service transactions. See G.L. c. 64H, § 1(13)(c); 830 CMR 64H.1.1(2)(a)2.

The extent and nature of any garment alteration, however, will determine whether the service is taxable as a fabrication. See G.L. c. 64H, § 1(12)(b) (fabricating of tangible personal property is a sale). A fabrication is defined in pertinent part as "any substantial alteration in the form or shape of an existing article of tangible personal property where either party to the transaction furnishes the material." 830 CMR 64H.1.1(3). As you state the facts, the alterations the Company performs are minor adjustments to the fit of a garment and do not result in a substantial change in the form or style of a garment. 1 The Company's alteration services, as you have described them, are not subject to the sales tax as fabrications.


Very truly yours,
Stephen W. Kidder
Commissioner of Revenue
November 29, 1989
LR 89-12


Footnotes:

1 If a customer requested the Company to remodel the style or form of a garment in a substantial way, only the alteration charge over the amount of $175, the exempt amount for sales of articles of clothing, would be taxable. See Letter Ruling 85-69 (calculation of tax on fur remodeling).