October 8, 1991

Facts

The Corporation, a major construction company, is the managing partner of a joint venture ("the Joint Venture") that is building [ ]. The work, which involves the construction of a combination of roadways, a bridge, and a tunnel, is being performed under a contract with the Massachusetts Department of Public Works ("the MDPW Contract"). The Joint Venture holds a contractor's exempt purchase certificate (Form ST-5C) executed by the MDPW.

The Joint Venture purchases electricity at several metered locations in connection with its performance under the MDPW Contract. The electricity is used for several different purposes, as described below:

Temporary Power for Construction. This category includes uses such as the operation of power tools, pumps, heaters, etc., used by workers in the construction process.

Temporary Street Lights. Temporary lights are installed for the safety of traffic temporarily diverted by ongoing construction. The lights remain in place until construction of the permanent roadway is finished and accepted by the MDPW. Installation of the temporary lights is required under the MDPW Contract.

Traffic Lights. Signal lights are installed to handle traffic diverted onto temporary roadways within the construction site. They are installed on an "as needed" basis and will be dismantled when the temporary roadways are no longer required.

Change Houses. These are mobile trailers used by workers to change clothes and eat meals.

Warehouse. The warehouse is used as an area to receive and store materials used in the construction of the project, as an office area for superintendents and project safety personnel, and as a work area for mechanics and shop carpenters.

Subcontractor Trailers. The trailers are temporary office facilities adjacent to the warehouse.

You state that the electricity consumed in all of the activities described above is used in some way in the construction process because the electricity would not have been purchased but for the MDPW Contract. You have asked for a ruling to determine whether electricity purchased for any or all of the above uses is exempt from sales and use tax under G.L. c. 64H, § 6(f); G.L. c. 64I, § 7(b).

Discussion

Chapter 64H of the General Laws imposes a tax on the retail sale of tangible personal property. G.L. c. 64H, § 1, as amended by St. 1990, c. 121, § 42; St. 1990, c. 150, § 359, states that, for the purposes of Chapter 64H, "tangible personal property" includes gas, electricity, and steam. Thus, the sale of electricity to the Joint Venture is subject to tax unless an exemption applies.

In relevant part, G.L. c. 64H, § 6(f), provides an exemption from sales tax for:

[s]ales of building materials and supplies to be used in the construction, reconstruction, alteration, remodeling or repair of (1) any....public highway, bridge or other public works owned by or held in trust for the benefit of any government body or agency mentioned in paragraph (d) and used exclusively for public purposes....provided that such governmental body or agency....shall have first obtained a certificate from the commissioner stating that it is entitled to such exemption and the vendor keeps a record of the sales price of each such separate sale, the name of the purchaser, the date of each such separate sale and the number of such certificate. In this paragraph the words "building materials and supplies" shall include all materials and supplies consumed, employed or expended in the construction, reconstruction, alteration, remodeling or repair of any building, structure, public highway, bridge or other such public work, as well as such materials and supplies physically incorporated therein. Said term shall also include rental charges for construction vehicles, equipment and machinery rented specifically for use on the site of any such tax exempt project or while being used exclusively for the transportation of materials for any such tax exempt project.

The courts have interpreted G.L. c. 64H, § 6(f), on several occasions, and these decisions largely control the outcome of the ruling you have requested. In E.T. & L. Construction Co. v. Commissioner, ATB No. 147697 (December 15, 1987), the Appellate Tax Board ruled that diesel fuel consumed in on-site construction machinery, equipment, and vehicles in the performance of public works contracts was included in the phrase "building materials and supplies" in G.L. c. 64H, § 6(f). In Essex Bituminous Concrete Co. v. Commissioner, ATB No. 105993 (January 26, 1981), the Board held that traffic and safety items, such as orange and white painted barrels, cones, flashing barricades, and flashing arrow boards that were used along highways during construction were construction "equipment" whose rental for use in a public works project was exempt from tax under § 6(f). Finally, however, in S.J. Groves and Sons Co. v. State Tax Commission, 372 Mass. 140, 144-145 (1977), the Supreme Judicial Court limited the breadth of § 6(f) by holding, inter alia, that "office supplies such as paper and office equipment such as a shed, shelves, doors and furniture are not within the ordinary meaning of 'building materials and supplies' and are not exempt."

We see no basis for distinguishing among different sources of power in interpreting G.L. c. 64H, § 6(f). If diesel fuel used to power on-site construction machinery is a building material or supply qualifying for the exemption, then other sources of power such as electricity should also qualify when they are used in a similar manner. Thus, we conclude that the "temporary power for construction" purchased by the Joint Venture can qualify for the exemption under G.L. c. 64H, § 6(f).

Although electricity may be a building material or supply when used directly in construction, not every use of electricity under a public works contract is therefore exempt under § 6(f). See S.J. Groves & Sons Co., 372 Mass. 140 (1977). In drawing the line between purchases of electricity that will qualify for the § 6(f) exemption and those that will not, we think it is necessary to examine the precise manner in which the electricity is consumed. In general, only electricity used to power construction vehicles, equipment, and machinery of a type whose rental for exclusive use in a public works project would be exempt 1 from sales and use tax under G.L. c. 64H, § 6(f) and G.L. c. 64I, § 7(b), will qualify as a building material or supply under § 6(f). Electricity used for other purposes will not.
Applying this standard to the facts that you have presented, electricity used to power temporary street lights and traffic lights is exempt as a building material or supply under § 6(f) because rental of traffic safety equipment for use in public works projects is exempt under § 6(f). See Essex Bituminous Concrete Co. v. Commissioner, ATB No. 105993 (January 26, 1981). The electricity used in the Joint Venture's warehouses, change houses, and trailers is not exempt, however, because of the similarity of these items to the office equipment that the Court in S.J. Groves & Sons Co. held did not qualify for the exemption under G.L. c. 64H, § 6(f).

Conclusion

Electricity purchased by the Joint Venture to power construction equipment and traffic safety equipment, including street lights and traffic lights, is a building material or supply that is exempt from tax under G.L. c. 64H, § 6(f). Electricity purchased by the Joint Venture and used in its warehouse, change houses, and trailers is subject to tax.


Very truly yours,
/s/Mitchell Adams
Mitchell Adams
Commissioner of Revenue
October 8, 1991
LR 91-7


Footnotes:

1 A purchase of electricity may be exempt under § 6(f) even though the electricity powers construction vehicles, equipment, or machinery that the taxpayer owns (rather than leases) or that the taxpayer does not use exclusively on public works projects. However, the electricity in question must power the vehicles, equipment, or machinery only while they are being used in a public works project.