August 23, 1994

You represent a national non-profit organization representing floor covering dealers, which assists dealers with advice on business management. One significant area of business management is compliance with state regulations, and so you request assistance in determining the proper Massachusetts sales tax treatment of various sales of floor coverings.

I. FACTS

For purposes of this letter ruling, we assume that floor covering dealers 1) sell floor coverings (such as carpeting, vinyl flooring, or tile) by the square foot, yard or other standard unit; and 2) hold themselves out to the public as retailers of floor coverings, and sell floor coverings with or without installation. You present five typical cases of sales of floor coverings for determination of the proper Massachusetts sales and use tax treatment under G.L. c. 64H and c. 64I, as follows.

1. A floor covering dealer sells outdoor turf floor covering to a customer. The customer pays for the floor covering and takes it with him.

2. A floor covering dealer sells carpeting to a church, which the dealer will install in the church. The church provides a tax exemption certificate to the dealer.

3. A floor covering dealer sells carpeting to a designer, which the designer will then sell to a client and install in the client's home. The designer provides a resale certificate to the dealer.

4. A floor covering dealer sells carpeting and linoleum to a residential customer, which the dealer will permanently install in the customer's home. The carpeting and linoleum will replace old flooring.

5. A floor covering dealer sells carpeting to a building contractor, which the contractor will permanently install in a newly constructed home.

II. RULING

For the reasons discussed below, we determine that as a general rule, for purposes of the Massachusetts sales and use tax, G.L. c. 64H and c. 64I, a dealer selling floor covering is a vendor of tangible personal property and is responsible for collecting the Massachusetts sales tax on the total sales price of the tangible personal property, unless an exemption applies.

III. DISCUSSION

General rule. Massachusetts imposes a five percent sales tax on retail sales by any vendor of tangible personal property in Massachusetts, unless a statutory exemption applies. G.L. c. 64H, § 2. A retail sale is a sale of tangible personal property for any purpose other than resale in the regular course of business. G.L. c. 64H, § 1. The sales price is the total amount paid by a purchaser to a vendor as consideration for a retail sale. G.L. c. 64H, § 1. Massachusetts 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. G.L. c. 64I, § 2

Section 6(e) of G.L. c. 64H, exempts from the Massachusetts sales tax "sales to any corporation, foundation, organization or institution, which is exempt from taxation under section 501(c)(3) of the Internal Revenue Code, as amended and in effect for the applicable period." However, the exemption applies only if (1) sales of tangible personal property are used in the conduct of a religious, charitable, educational or scientific enterprise, (2) such corporation, foundation, organization or institution has obtained certification from the Commissioner, stating that it is entitled to such exemption, and (3) the vendor keeps a record of the sales price and date of each sale, the name of the purchaser, and the number of the certificate." See Letter Ruling 85-34.

Section 8(a) of G.L. c. 64H explains that all sales by a vendor of tangible personal property are presumed to be a retail sale subject to tax unless the contrary is established. The burden of proving that a sale is not a retail sale is on the vendor, unless the vendor takes from the purchaser a certificate to the effect that the property is purchased for resale. The resale certificate shall relieve the vendor from the burden of proof only if the vendor in good faith takes the certificate from a person who is engaged in the business of selling services or tangible personal property. See 830 CMR 64H.8.1; Letter Rulings 81-47, 83-90.

Building contractors. Massachusetts imposes a sales tax on retail sales by a vendor of tangible personal property in Massachusetts. G.L. c. 64H, § l. However, building contractors engaged in real estate improvement contracts are the consumers of tangible personal property purchased by them for the performance of their contracts. See Ace Heating Service, Inc. v. State Tax Commission, 371 Mass. 254, 256-57; Letter Rulings 85-68, 88-8; Emergency Regulation No. 12. As consumers of the tangible personal property, building contractors pay sales tax on their purchases. See Ace Heating, 371 Mass. at 256-57; Letter Rulings 82-121, 82-122, 88-8.

The general sales tax rule for contractors does not apply to sales contracts in which persons act as retailers selling tangible personal property in the same manner as other retailers, and install a complete unit of a standard item of tangible personal property, which requires no further fabrication other than installing, applying or connecting services. Persons acting as retailers of tangible personal property are not contractors and must collect tax from the buyer on the sales price of the item. See LR 88-8; Emergency Regulation No. 12.

Installation charges. Sales price is defined as the total amount paid by a purchaser to a vendor as consideration for a retail sale of tangible personal property. G.L. c. 64H, § 1. Sales price includes the amount paid for any services that are a part of the sale. G.L. c. 64H, § 1, see "sales price" (b)(i). However, "sales price" (c)(iii) of G.L. c. 64H, § 1, excludes from the sales price the amount charged for labor or services rendered in installing the property sold.

Thus, labor or installation charges, if separately stated, are not included in the sales price of floor covering and are not subject to sales tax. See Letter Rulings 81-71, 82-72, 85-16. If installation charges are not separately stated, they are included in the sales price of floor covering and are subject to sales tax. G.L. c. 64H, § 1, see "sales price" (b)(i).

IV. CONCLUSION

Based on the discussion above, we make the following determinations:

1. A dealer who sells floor covering to a customer who pays for and picks up the floor covering is a vendor who has made a retail sale of tangible personal property subject to the Massachusetts sales tax under G.L. c. 64H, § 2.

2. A dealer who sells carpeting to a church and installs the carpeting in the church is a vendor who has made a retail sale of tangible personal property subject to tax under G.L. c. 64H, § 2. However, G.L. c. 64H, § 6(e), exempts from the Massachusetts sales tax a sale of tangible personal property to a church or other organization which is exempt from taxation under Section 501(c)(3) of the federal Internal Revenue Code. Therefore, the sale of carpeting by a vendor to a church is not subject to the Massachusetts sales tax, provided that (a) the church has obtained a tax exempt certificate from the Commissioner, (b) the carpeting or other tangible personal property is used in the conduct of the church's activities, and (c) the vendor keeps complete records of the sales. See Letter Ruling 85-34.

3. A dealer who sells carpeting to a designer, who purchases the carpeting for a client, is a vendor who has made a retail sale of tangible personal property subject to tax under G.L. c. 64H, § 2. However, G.L. c. 64H, § 8, exempts from the Massachusetts sales tax a sale for resale, provided that the conditions of G.L. c. 64H, § 8 and regulation 830 CMR 64H.8.1 are met. Generally, where the vendor accepts a resale certificate in good faith from a designer who is in the business of selling tangible personal property to clients, the sale by the dealer to the designer may be made tax free. See Letter Rulings 81-47, 83-90.

4. A dealer who sells carpeting and linoleum to a residential customer and permanently installs the carpeting and linoleum, which replaces old flooring, is a vendor who has made a retail sale of tangible personal property subject to tax under G.L. c. 64H, § 2. The customer pays to the vendor the Massachusetts sales tax based on the total sales price of the carpeting and linoleum. Separately stated installation charges are not included in the sales price. See Letter Ruling 85-16.

5. A dealer who sells carpeting to a building contractor, who will install the carpeting in a newly constructed home, is a vendor who has made a sale of tangible personal property subject to tax under G.L. c. 64H, § 2. In Massachusetts, the general sales tax rule for contractors and subcontractors who construct, reconstruct, alter, improve, remodel and repair real property ("construction contractors") is that contractors are the consumers of tangible personal property purchased by them for the performance of their contracts. See Ace Heating Service, Inc. v. State Tax Commission, 371 Mass. 254, 256-57; Letter Rulings 85-68, 88-8. The contractor is the consumer of the carpeting and is responsible for paying to the vendor the Massachusetts sales tax, which is based on the total sales price paid by the contractor for the carpeting. See Ace Heating Service, 371 Mass. 254, 2557; Letter Rulings 82-121, 88-8; Emergency Regulation No. 12.

Very truly yours,

/s/Mitchell Adams

Mitchell Adams
Commissioner of Revenue

MA:HMP:mg

LR 94-5