May 12, 1998

You request a letter ruling on the application of the Massachusetts sales tax, G.L. c. 64H, to sales of specially-marked trash bags used in connection with a municipal "pay as you throw" trash disposal program sponsored by the *************** ("Town"). You indicate that residents are required to purchase such specially-marked bags to be used in the disposal of their trash at the Town's transfer station. Under this program, the Town purchases the bags directly from a vendor and then enlists the support of local businesses such as convenience stores and supermarkets in selling the bags on the Town's behalf. The bags are delivered to the stores by the Town and sold at the stores. The vendors pay the Town 75 cents per bag at the time of delivery. The sales price of the bags includes 13 cents to cover the cost of the bags, and 62 cents to cover the Town's costs of operating the transfer station.

Ruling

For reasons discussed below, we rule that sales of specially-marked trash bags solely for use in the Town's pay-as-you-throw trash disposal program, as described in this ruling, are not subject to sales tax.

Discussion

Massachusetts imposes a five percent sales tax on sales at retail of tangible personal property by any vendor in Massachusetts. G.L. c. 64H, § 2. The excise is imposed at the rate of five percent of the gross receipts of the vendor. Id. "Gross receipts" is defined as the total sales price received by a vendor as a consideration for retail sales. The sales price upon which the excise is based is "the total amount paid by a purchaser to a vendor as consideration for a retail sale, including the cost of materials used, any amount paid for any labor or services that are part of a sale, and the cost of transportation of the property prior to its sale at retail. See G.L. c. 64H, § 1. Generally, the sales tax is collected by the vendor from the purchaser, and the vendor then pays the sales tax to the Department of Revenue. See G.L. c. 64H, §§ 2, 3. G.L. c. 64H. § 1.

A "sale at retail" is a sale of tangible personal property for any purpose other than resale in the regular course of business. G.L. c. 64H, § 1. However, professional, insurance, or personal service transactions which involve no sale or which involve sales as inconsequential elements for which no separate charges are made are excluded from the sales tax. Id.

Trash bags are tangible personal property; however the sale of a specially-marked trash bag entitling the purchaser to municipal trash disposal also embodies elements of a service. Whether a particular transaction involving the transfer of tangible personal property is a personal service transaction depends on the facts.

For Massachusetts sales tax purposes, where the services and the property are inseparable because of the integrated nature of the transaction, the character of the transaction must be analyzed to determine whether the buyer's basic purpose was to obtain the property sold or the services. See Commissioner of Revenue v. Houghton Mifflin Co., 396 Mass. 666, 670 (1986), citing Houghton Mifflin Co. v. State Tax Commission, 373 Mass. 772, 774 (1977); 830 CMR 64H.1.1(2)(a), (b). Simply stated, the sales tax applies when the buyer's object is to acquire tangible property; it does not apply if the buyer's object is to obtain the service and any transfer of the property is inconsequential in nature.

In the case of municipal trash disposal programs, the customer must purchase specially-marked bags, whether directly or through participating retailers, in order to obtain trash disposal services. Because the buyer cannot acquire the trash disposal service without the purchase of a specially-marked bag, we conclude that the transaction is so integrated as to be inseparable. Thus, we must examine the object of the transaction.

We conclude that the real object of the transaction is to obtain a trash disposal service. The specially-marked bags are clearly distinguishable from ordinary trash bags. Regular bags are substantially less expensive than the specially-marked bags because they do not reflect the additional cost of receiving trash disposal. If customers wished to purchase ordinary trash bags, they could easily do so. The value of these bags to the customers, then, lies not merely in the bags themselves, but in their use for waste disposal services.

Although the object of the transaction here is to acquire the service, the entire transaction will be taxable unless the value of the property sold is inconsequential in relation to the total charge. See 830 CMR 64H.1.1(2)(b). "Inconsequential" is generally defined as having a value of less than ten percent of the total charge. This definition serves only as a guideline and varies depending on the facts and circumstances of the transaction. See 830 CMR 64H.1.1(1).

In the case of specially-marked bags used in municipal trash disposal programs as described in this ruling, the Department will treat the transfer of such bags as an inconsequential element of a trash disposal service. Sale of these specially-marked bags is therefore not taxable unless the vendor separately states a price for the bag itself apart from the disposal service; in such a case the vendor must collect and remit sales tax on the price of the bag. See 830 CMR 64H.1.1(a)(2).

Very truly yours,

/s/Mitchell Adams

Mitchell Adams
Commissioner of Revenue

MA:HMP:wrd

LR 98-11