May 23, 1997

You request a letter ruling for your client, *************** ("Taxpayer"), concerning boats it charters from individual boat owners for rentals to customers for cruises or for bed and breakfast charters. The Taxpayer charters boats from individual boat owners and acts as an "independent broker" for the owners in renting the boats to its customers for cruises or for bed and breakfast charters. Specifically, you ask the following questions:

(1) Must the Taxpayer collect sales tax on its charter or rental of boats to customers?

(2) Are meals, which may be included as part of the ticket price but not separately stated, subject to sales tax?

(3) If boats are chartered for overnight use, are overnight stays subject to the room occupancy excise?

I. FACTS

The Taxpayer describes itself as an independent broker "in the business of chartering and renting boats, yachts, and similar vessels to members of the public." *************** Management Consignment Agreement, clause 2. The Taxpayer pays boat owners a flat fee for the use of their boats (or pays an additional amount to cover the cost of a captain and food, if provided by the owners). The Taxpayer is given "full authority regarding management and control over the vessel for the [t]erm of the agreement] for the purpose of chartering or renting the vessel to charterers chosen by the broker." Id.

The Taxpayer offers two different types of charters. In one type, the boat leaves the dock for a cruise on which customers typically supply their own food, although on occasion the Taxpayer may provide a caterer and food and include those costs in the charter price. The second type is a bed and breakfast charter in which the boat remains docked and is used for meals and lodging. The Taxpayer provides food for a continental breakfast prepared by the customers and the cost of the breakfast is also included in the charter price.

On both types of charters, the actual boat owner typically is the captain or supplies a captain. In rare instances, the Taxpayer supplies a captain as part of the charter or a customer, if qualified, may captain the vessel. In any event, even where the Taxpayer hires a captain, the captain is an independent contractor, not under the Taxpayer's control or supervision. The captain deals directly with customers to determine their intentions and "plans, navigates and coordinates the trip on his/her own, according to the Taxpayer's representative; see also *************** Agreement, clause 11. Once the Taxpayer transfers the boat, the customers have exclusive possession and control of the boat for a specified period of time.

II. DISCUSSION OF LAW

Issue 1. Must the Taxpayer collect sales tax on its charter or rental of boats to customers?

Massachusetts General Laws, Chapter 64H imposes a five percent sales tax on all retail sales by any vendor in Massachusetts of tangible personal property not otherwise exempt. G.L. c. 64H, § 2. A "retail sale" is any sale not for resale in the regular course of business. Id. For Massachusetts sales tax purposes, a "sale" includes "[a]ny transfer of title or possession or both, exchange, barter, lease, rental, conditional or otherwise, of tangible personal property . . . for a consideration" (emphasis added). G.L. c. 64H, § 1. The Taxpayer's rental of a boat is a "sale," and the Taxpayer must collect tax if it is a retail vendor of the property.

The Taxpayer qualifies as a retail vendor. The Taxpayer states that it is "in the business" of renting boats. Moreover, under guidelines in DOR Directives 88-12 and 89-18 (among others), the Department has stated that a retailer will be considered the vendor of an item sold for its actual owner if the retailer has full authority to commit the owner to sell, or authority to transfer title or possession of the property to the buyer. As is clear from the facts above, the Taxpayer has full authority to transfer possession of the vessel to a customer. Accordingly, we rule that each boat charter is a separate rental of tangible personal property subject to sales tax at 5% of the full price of the charter.

Issue 2. Are meals included as part of the charter price but not separately stated subject to the sales tax on meals?

The Taxpayer states that in nearly all cases customers provide their own food. In those cases, there are no "meals" within the meaning of G.L. c. 64H, § 6(h) and no sales tax is due. If the Taxpayer provides food for which a charge is made, however, the Taxpayer will generally be considered to be running a "restaurant" within the meaning of G.L. c. 64H, § 6(h), and its sales of food will be subject to tax. Id.

Here the Taxpayer charters a boat for a fee which includes food, the price of which is not separately stated. In such a case, the full price for the charter would ordinarily be subject to the sales tax on meals. See regulation 830 CMR 64H.6.5(7); see also Letter Ruling 83-99. In this case, however, the full charter price is already subject to sales tax under G.L. c. 64H, §§ 1,2. The tax is not to be charged twice; thus no additional tax is to be collected on meals.

Issue 3. If boats are chartered for overnight use, are overnight stays subject to room occupancy tax?

G.L. c. 64G, § 3 imposes a room occupancy excise on "the transfer of occupancy of any room or rooms in a hotel, lodging house, or motel in this commonwealth . . . ." A hotel or motel must be a "building." G.L. c. 64G, § 1(c),(e). A bed and breakfast establishment is "a private, owner occupied-house . . . ." G.L. c. 64G, § 1(a). A lodging house is "a house where lodgings are let to four or more persons . . . ." G.L. c. 64G, § 1(a),(d).

Neither the word "building" nor the word "house" is defined in the room occupancy statute; they must, therefore, be given their ordinary meanings. G.L. c. 4, § 6, Third. Webster's Ninth New Collegiate Dictionary (1984) defines a "building" as "a usu[ally] roofed and walled structure built for permanent use (as for a dwelling); a "house" is "a building that serves as living quarters for one or more families . . . . a building in which something is housed." [1] The boats in question are neither houses nor buildings. Consequently, the chartered boats are not bed and breakfast establishments, lodging houses, hotels or motels for purposes of the statute. As a result, overnight stays on the boats are not subject to the room occupancy excise.

III. CONCLUSION

Based on the facts as presented in this case, we conclude as follows:

(1) The Taxpayer is a retail vendor of tangible personal property and its charter of boats to its customers is a taxable retail sale. The sales tax is based upon 5% of the total amount charter price.

(2) Meals included as part of a boat charter price, but not separately stated, ordinarily are subject to sales tax under G.L. c. 64H, § 6(h), but are not taxed separately here, provided that sales tax is collected on the entire price of the charter, including food.

(3) Boats chartered for overnight use by customers are not subject to the room occupancy excise under G.L. c. 64G, § 1.

Very truly yours,

/s/Mitchell Adams

Mitchell Adams
Commissioner of Revenue

MA:HMP:mg

LR 97-1



[1] Cases from other jurisdictions are to the same purport, unless there is a statutory definition of "building" which specifically includes watercraft. See, e.g., Mutual Lumber Company v. Shepard, 173 S.W.2d 494, 497 (Tex. App. 1941) ("building" generally regarded as including any useful structure on land); University City v. Home Fire & Marine Ins. Co., 114 F.2d 288, 296 (8th Cir. 1940) (building "covers a space of land"); Rouse v. Catskill & N.Y. Steamboat Co., 13 N.Y.S. 126 (1892) ("a building is a part of the land"); cf. People v. Richburg, 392 N.Y.S.2d 16, 17 (1978) (building defined by statute to include "watercraft used for overnight lodging").