March 13, 2013
You request a letter ruling on behalf of *********************** (“Corporation”) regarding the applicability of Massachusetts sales and use taxes under G.L. c. 64H and c. 64I, respectively, to the transfer by Corporation of mobile medical laser eye equipment (“Equipment”) and services provided by Corporation’s certified technicians (“Technicians”) to medical service providers located in Massachusetts (“Providers”). In considering your request, you ask that we rule as follows:
(1) that the transfer of the Equipment by Corporation to Providers constitutes a lease or rental of tangible personal property and is subject to sales tax; and
(2) that the charges for services rendered by Corporation’s Technicians to Providers are exempt from sales tax when separately stated on Corporation’s invoices to Providers.
The following is your representation of the facts upon which we base our rulings. Corporation is a medical equipment and service provider headquartered in *****************. Corporation operates throughout the United States. Corporation’s Massachusetts activities include supplying Equipment to Providers pursuant to a binding written agreement (“Agreement”).
Pursuant to a sample Agreement, Corporation’s relevant responsibilities are as follows. Corporation must supply Providers with periodic access to Equipment. The Equipment is, and will at all times be and remain, however, the sole and exclusive property of Corporation. Corporation is responsible for all maintenance and repair of the Equipment. In supplying the Equipment, Corporation must provide a trained and certified Technician to deliver, install, calibrate (before and after each use), disassemble, and remove the Equipment upon completion of the Agreement. The Technicians are employees of Corporation and must act under Corporation’s guidance. For such time as Corporation is providing its Equipment on a periodic basis, Corporation’s Technicians are also responsible for assisting Providers’ physicians in using the Equipment, as needed. However, the responsibility for actually operating the Equipment in administering laser procedures to patients lies with a Provider’s physicians, not with the Technicians.
Pursuant to the sample Agreement, a Provider’s relevant responsibilities are as follows. The Provider must use Corporation’s equipment and services on an exclusive basis. Provider’s physicians use the Equipment in administering laser procedures to patients. Before doing so, each physician employed by Provider and using the Equipment must complete and submit to Corporation a Physician’s Application along with a curriculum vitae, documentation of medical and state licenses, proof of malpractice insurance, and proof of the appropriate equipment certifications and Federal DEA certificate. A Provider may not permit any of its physicians to use the Equipment until the Provider receives notification from Corporation that it has approved the Physician’s Application and such use. A Provider’s physician must use the Equipment in strict compliance with all manufacturers’ instructions and manuals and in a careful and proper manner. A Provider is liable for any damage, theft or destruction to the Equipment resulting from its physicians’ or employees’ misuse, negligence, or mishandling of the Equipment.
The payment terms under the Agreement are as follows. Payment is due based on a per case or procedure charge, which is billed cumulatively each month. The term of an Agreement is typically one year. Sample invoices issued by Corporation to two of its Providers were supplied for our review. Neither invoice appears to contain separately stated charges for Technicians’ services, although one of the invoices contains a separate shipping, handling, and delivery surcharge.
Under the Massachusetts General Laws, a sales tax is imposed on all retail sales in Massachusetts, by any vendor, of tangible personal property or of telecommunication services performed in the Commonwealth, at the rate of 6.25% of the gross receipts of the vendor from all such sales of such property or services, unless otherwise exempt. G.L. c. 64H, § 2. If no sales tax is paid on the purchase of tangible personal property, a 6.25% use tax is imposed on the storage, use, or other consumption of the property in Massachusetts. G.L. c. 64I, § 2. Otherwise, purchases upon which sales tax has been collected are exempt from use tax by G.L. c. 64I, § 7(a).
For purposes of both c. 64H and c. 64I, the term “services”, is limited to telecommunication services. G.L. c. 64H, § 1 and G.L. c. 64I, § 1. Additionally, for purposes of both chapters, the following terms have the following meanings. A "sale at retail" is a sale of services or tangible personal property or both for any purpose other than resale in the regular course of business. Id. Expressly excluded from the definition of “retail sale” and, thus, excluded from the sales or use tax are “personal service transactions which involve no sale [of tangible personal property] or which involve sales [of tangible personal property] as inconsequential elements for which no separate charges are made.” Id. A “sale” is defined to include any transfer of title or possession, or both, including a lease or rental, of tangible personal property for a consideration. Id.
The “sales price” upon which the sales or use tax is based is the total amount paid by a purchaser to a vendor as consideration for a retail sale, including 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. Id. Excluded from the “sales price” and, thus, from the sales or use tax is the amount charged for labor or services rendered in installing or applying the property sold and transportation charges separately stated, if the transportation occurs after the sale of the property is made. Id. 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.
The above notwithstanding, in determining the application of the sales tax to transportation charges associated with the sale of tangible personal property, but for no other purpose, the Commissioner of Revenue has stated that she will treat all such transportation charges as nontaxable provided that the following requirements are met: the charge (1) reflects the cost of preparing and moving the property to a location designated by the purchaser, (2) is separately stated on the invoice to the purchaser, and (3) is set in good faith and reasonably reflects the actual costs incurred by the vendor. See DD 04-5.
In the case of a lease (or a rental) of tangible personal property, the receipts derived from the lease are subject to sales tax as follows. The tax is computed on the gross receipts received without any allowance for services or maintenance which the lessor might furnish as part of the sale. The amount charged for labor or services rendered in installing or applying the property leased, and transportation charges (provided the transportation charges satisfy the three requirements set forth in DD 04-5, paraphrased above,) are not subject to tax, however, provided such charges are separately stated to the lessee. Each period for which a lease payment is made is considered a complete sale for the purpose of the imposition, collection, and payment of the sales tax. See Emergency Regulation No. 3 reprinted in Joseph X. Donovan, The Massachusetts Sales and Use Tax Manual Revised, Issue 2 (1989), 391.
In determining whether a taxable lease (or rental) of tangible personal property, or a nontaxable service requiring use of the property by a service provider, has occurred depends upon whether possession of the property is transferred to the lessee. New York Times Co. v. Commissioner of Revenue, A.T.B. No. F214442 (1997), aff’d 427 Mass. 399 (1998). Possession is deemed to have passed to the lessee and constitutes a taxable lease whenever the property is under the lessee’s control or direction. Id. In New York Times Co., the Appellate Tax Board (“Board”) looked to other Board and Supreme Judicial Court decisions distinguishing taxable sales or leases of property from nontaxable sales of transportation services that have also focused on control of the property to determine whether possession of the property had been transferred. See e.g., Boynton Trucking Co. v. State Tax Comm’n, A.T.B. No. 76095 (1977) (where the transactions involved were found to constitute taxable rentals of motor vehicles rather than a nontaxable sale of transportation services because the transferee had acquired possession and control of the motor vehicles and control over the drivers) and Browning-Ferris Indus., Inc. v. State Tax Comm’n, 375 Mass 326, 330 (1978) (where control in the customer was found while the trash container at issue was on his premises sufficient to make out a “possession”). Guided by these cases, the Board in New York Times Co. held that control over property, as a matter of fact, will determine whether a transfer of possession took place so as to constitute a taxable sale or lease.
You have asked us to rule that the transfer of the Equipment by Corporation to Providers constitutes a lease or rental of tangible personal property and is subject to the sales tax. We agree with that conclusion. The transfer of the Equipment by Corporation to a Provider constitutes a taxable lease or rental, for purposes of G.L. c. 64H, § 1, because upon the transfer the Provider and its physicians acquire control and direction over and, thus, possession of the Equipment. As noted in the Facts above, even though a trained and certified Technician responsible for delivering, installing, calibrating, disassembling, and removing the Equipment upon completion of an Agreement is supplied by Corporation to each Provider, once the Equipment is transferred to a Provider it is the Provider’s physicians that are responsible for using, directing, and, controlling the Equipment in administering laser procedures to patients, not Corporation’s Technicians. The latter individuals are responsible, as stated in the Facts, only for assisting a Provider’s physicians in using the Equipment, as needed.
You also have asked us to rule that the charges for services rendered by Corporation’s Technicians to Providers are exempt from sales tax when separately stated on Corporation’s invoices to Providers. We agree with that conclusion as well, as discussed below. The services provided by Corporation’s Technicians to Providers include delivery and removal of the Equipment upon completion of the Agreement. Transportation charges associated with the lease of tangible personal property are excluded from the sales tax provided the charge: (1) reflects the cost of preparing and moving the property to a location designated by the lessee, (2) is separately stated on the invoice to the lessee, and (3) is set in good faith and reasonably reflects the actual costs incurred by the lessor. G.L. c. 64H, § 1; DD 04-5. The services provided by Corporation’s Technicians to Providers also include installing, calibrating (before and after each use), and disassembling the Equipment upon completion of the Agreement. Additionally, the Technicians assist Providers’ physicians in using the Equipment, as needed. Charges for these services also are excluded from the sales tax because amounts charged for labor or services rendered in installing or applying the property leased are excluded from the “sales price” upon which the tax is based under G.L. c. 64H, § 1, provided such charges are separately stated to the lessee.
For the reasons set forth above, we rule that the transfer of the Equipment by Corporation to Providers constitutes a lease or rental of tangible personal property and is subject to sales tax. Each month for which a payment is made by a Provider is considered a complete sale for the purpose of the imposition, payment, and collection of the sales tax.
Additionally, we rule that the charges for services rendered by Corporation’s Technicians to Providers are exempt from sales tax as discussed above, when separately stated on Corporation’s invoices to Providers.
Very truly yours,
Commissioner of Revenue