You ask for a letter ruling regarding the applicability of the exemption from sales tax under G.L. c. 64H, § 6(qq) ("the small business exemption") for purchases of electricity by *************** ("Manager"), a management company engaged to manage an office building on behalf of *************** ("Landlord"), a business having five or fewer employees. In support of your request, you state the facts as follows:
*************** ("Landlord") is a Massachusetts general partnership that owns a large office building in which it leases space to a variety of tenants. Landlord furnishes electricity purchased through a single master meter from *************** ("Electric Company") to most of its tenants. It neither monitors tenant usage of electricity, nor separately charges tenants for such electricity. A limited number of retail users, comprising less than 2% of the total renewable area of the building, purchase their own electricity. The electricity is billed to *************** ("Manager"), a Massachusetts corporation that has been engaged by Landlord to manage the premises. Manager's sole shareholders are individual family members *************** ("Shareholder 1"), *************** (Shareholder 2) and *************** ("Shareholder 3"). Six persons are employed by Manager, which is also an affiliate of Partner 2 (described below). Manager's business activities consist of managing real estate for Landlord, as well as for affiliates of the *************** family and other unrelated owners.
Landlord, whose sole business activity is the operation of *************** ("the Premises") has fewer than five employees. Landlord's sole general partners are *************** ("Partner 1") a New York corporation, and *************** ("Partner 2"), a Delaware limited liability company. Each General Partner holds a 50% partnership interest in Landlord.
Partner 1 is a large company having numerous business activities and more than five employees. None of the directors or officers of Partner 1 has any ownership interest in Partner 2 or Manager. Partner 2 is a Delaware limited liability company having no employees. It conducts no business other than holding its partnership interest in Landlord and owning a parking lot on a Street adjacent to the Premises. Partner 2 is comprised of seven members,  including three individual shareholder "managing members," two corporate members, a limited partnership member, and one individual member. The General Partners are completely independent of one another and have no common ownership. Landlord, Partner 1, Partner 2 and Manager all file separate tax returns and are not included as part of an "affiliated group" pursuant to Section 1504 of the Internal Revenue Code.
For reasons discussed below, we rule that the Manager's purchases of electricity on behalf of Landlord qualify for the small business exemption under G.L. c. 64H, § 6(qq). However, the Commissioner is reviewing the rules currently set forth in the Qualifying Small Business Exemption Regulation, 830 CMR 64H.6.11. Future transactions are subject to any changes the Commissioner may make to these rules.
Massachusetts imposes a five percent sales tax on sales at retail of tangible personal property by any vendor in Massachusetts, unless a statutory exemption applies. See G.L. c. 64H, § 1. Tangible personal property includes gas, steam, electricity and heating fuel. G.L. c. 64H, § 1.
The exemptions from the sales tax are found in G.L. c. 64H, § 6. Under G.L. c. 64H, § 6(qq), sales of gas, steam, electricity and heating fuel are exempt from tax when the sales are made to any business that has five or fewer employees. Id., added by St. 1990, c. 150, § 352.
As a general rule, the person who pays for the taxable fuel is the purchaser of such fuels for purposes of determining whether the sale of such fuels is subject to sales or use tax. However, when the payor is an agent of another person within the meaning of 830 CMR 64H.6.11(7), a person other than the payor is deemed to be the purchaser in order to determine whether the purchaser is a small business within the meaning of G.L. c. 64H, § 6(qq). See 830 CMR 64H.6.11(6).
In order to determine whether Manager's purchases of electricity are exempt from tax, we must examine the relationship between Manager and Landlord. The taxpayer asserts that because Manager arranges for the purchase of electricity at the premises on Landlord's behalf, "the status of the principal as . . . a small business and not the status of the agent must be examined to determined whether the sale is subject to tax 830 CMR 64H.6.11(7)."
It is true that when an agent pays a third party vendor to provide taxable fuel to its principal and does not consume the fuel itself, the status of the principal as an individual or a small business and not the status of the agent must be examined to determine whether the sale is subject to tax. See 830 CMR 64H.6.11(7). However, several criteria must be met in order to identify the payor as an "agent" within the meaning of the Qualifying Small Business Exemption Regulation. Those criteria are as follows:
(a) The agent must have authority to bind the principal with respect to the purchase.
(b) The agent must clearly disclose the identity of its principal to the vendor.
(c) The fuel purchased must be a separate, identifiable service provided directly to a single principal.
(d) The agent must be reimbursed by the principal for the sales price of the fuel, and the sales price of the fuel must be separately stated at the cost paid by the agent on the bill or invoice that the agent submits to the principal. The agent may charge the purchase only to the account of the client that is the principal.
(e) Neither the agent itself nor any of its clients apart from the principal may consume or otherwise benefit from the use of the fuel in whole or part, except insofar as arranging the performance of the service may satisfy the agency contract with the principal. A business that manages real property on behalf of an owner is not an agent of the owner with respect to the purchase of any taxable fuels that are used on any portion of the property that the manager leases or occupies.
(f) The payor is not an agent with respect to services provided by the payor, its agents, or its employees. Id.
In DOR Letter Ruling 94-1, the Commissioner examined these principles as embodied in an example in 830 CMR 64H.6.11(g), in which a landlord purchased electricity for a number of office building tenants who shared a common meter. The tenants consisted of both large and small businesses. There, we reiterated that because the landlord ordinarily would not meet all of the criteria in 830 CMR 64H.6.11(7)(a)-(f) (e.g., 830 CMR 64H.6.11(7)(c), (d)) the landlord was not acting as an agent of the tenants. Therefore, the status of the landlord as a small business, rather than the status of the tenant, governed the applicability of the exemption.
Here, the invoice submitted for the Premises lists the Manager as the payor. Manager is not itself a small business. If Manager is an agent of Landlord, however, the status of Landlord as a small business determines eligibility for the exemption. See 830 CMR 64H.6.11(7). If, on the other hand, Manager is not acting as an agent of Landlord, the status of the Manager as a small business determines such eligibility. See Letter Ruling 94-1.
Based on the above principles and the information you provided, we conclude that Manager meets all of the criteria for being deemed an "agent" of Landlord with respect to its electricity purchases. Accordingly, the status of Landlord as a qualifying small business determines eligibility for the exemption. If Landlord is a qualifying small business, Manager's purchases on Landlord's behalf are not subject to sales tax.
You state that the Landlord itself has five or fewer employees. The inquiry does not end at this point. For purposes of determining whether a particular business qualifies as a small business, the Qualifying Small Business Exemption Regulation, 830 CMR 64H.6.11, requires that employees of businesses that are "affiliated" must be aggregated in determining whether the "five or fewer employees" threshold is met. Thus, we must examine whether Landlord is "affiliated" with other businesses, including its General Partners.
The regulation provides two sets of rules for determining whether businesses are affiliated. Businesses are deemed to be affiliated if either: 1) they are affiliated within the meaning of I.R.C. § 1504, see 830 CMR 64H.6.11(4)(a); or 2) they are otherwise affiliated under separate rules set forth in 830 CMR 64H.6.11(4)(b). If businesses are affiliated under either of these provisions, they are deemed to be a single business for purposes of the Small Business Exemption. If so, all employees of all members of the affiliated group are deemed to be employees of that single business.
Here, you indicate that the businesses are not affiliated within the meaning of I.R.C. § 1504. Assuming the facts as you state them to be true, the employees need not be aggregated under 830 CMR 64H.6.11(4)(a). Whether the businesses are otherwise affiliated is determined by applying the rules set forth in 830 CMR 64H.6.11(4)(b). Under 830 CMR 64H.6.11(b)(1), two or more businesses are "affiliated" when the same owner or the same group of common owners hold, in the aggregate, directly or indirectly, more than fifty percent of the total value of the ownership interest, or more than fifty percent of the combined voting power in each business. 830 CMR 64H.6.1(4)(b)1. For purposes of determining ownership under 830 CMR 64H.6.11(4)(b)1., the Commissioner will apply the constructive ownership provisions of I.R.C. § 318 , regardless of whether the ownership interest is represented by stock shares, partnership interests, or other indicia of ownership, provided that the constructive ownership provisions shall apply to siblings in addition to the relationships enumerated in I.R.C. § 318. 830 CMR 64H.6.11(4)(b)3.
Assuming the facts as you state them to be true, we conclude that Landlord is not "affiliated" with either of its general partners under 830 CMR 64H.6.11(4)(b), since there is no common ownership of more than fifty percent among Landlord and any of the other parties. Each partner owns fifty percent, but not more than fifty percent, of Landlord. There is no direct or indirect common ownership between Partner 1 and Partner 2. Landlord is not controlled by, and therefore not technically affiliated with, either of its General Partners. Since neither Partner holds more than a fifty percent interest in Landlord, the Partners' employees may not be deemed those of Landlord. Even if the rules of constructive ownership contained in IRC § 318 are applied, there is no violation of the "more than fifty percent" rule. Thus, Landlord is not affiliated with either of its general partners, and consequently, whether two or more of these entities may be engaged in related business activities need not be determined. 
Because Landlord is not "affiliated" with either of its partners, the employees of those partners are not considered to be employees of a single business together with Landlord's employees. Thus, the Landlord in this case has five or fewer employees.
Manager itself is not a qualifying small business within the meaning of 830 CMR 64H.6.11. Nevertheless, under the facts presented, Manager meets all seven criteria in 830 CMR 64H.6.11 (7) for being deemed an agent of Landlord. Therefore, the status of the Landlord as a qualifying small business determines whether Manager's purchases of electricity are subject to tax. Based on the facts and circumstances described above, Landlord has five or fewer employees, as defined in the regulation. Since its General Partners are not members of an affiliated group under 830 CMR 64H.6.11(4)(a) or (b), they are not deemed to be a single business for purposes of 830 CMR 64H.6.11(4), and the employees of the General Partners are not aggregated with the employees of Landlord. Since Landlord has five or fewer employees, the purchases of electricity by Manager as agent of Landlord qualify for exemption under G.L. c. 64H, § 6(qq), assuming all other requirements for exemption are met. The Commissioner is reviewing the rules currently set forth in the Qualifying Small Business Exemption Regulation, 830 CMR 64H.6.11. Therefore, future transactions are subject to any changes the Commissioner may make to these rules.
Very truly yours,
Commissioner of Revenue
 Shareholder 1, Managing Member
Shareholder 2, Managing Member
Shareholder 3, Managing Member
("R and D"), Member
Shareholder 1 is the Managing general partner of R and D as well as a general partner of ("R"). Shareholder 3 is the Managing General Partner of ("SM"). Shareholder 2 is a General Partner of ("R"). Thus, members of the Shareholder family control Partner 2 and each of its constituent members.
 If the businesses are affiliated under 830 CMR 64H.6.11(4)(b), those businesses must also be engaged in "related business activities." This determination depends on the facts and circumstances of each case, in accordance with the principles set forth in 830 CMR 64H.6.11(4)(b)2. Under 830 CMR 64H.6.11(4)(b), two or more "affiliated businesses" that are engaged in "related business activities" are deemed to be a single business, and all employees of all such "affiliated businesses" are deemed to be employees of a single business. However, the fact that two or more entities may be engaged in related business activities is of no consequence unless the entities are in fact affiliated. See 830 CMR 64H.6.11(4)(a),(b).
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