Under the recently decided cases of Hart and McGinley v. Commissioner of Revenue, Appellate Tax Board, Docket No. F233702 (1998) and Araserve, Inc. v. Commissioner of Revenue, Appellate Tax Board, Docket No. 223254 (1998), purchases of tangible personal property by a non-exempt party on behalf of an exempt entity are exempt from sales and use tax if the party is acting as the agent of the exempt entity.

The purpose of this TIR is to announce that the Department of Revenue (the Department) will follow these cases when deciding whether purchases are exempt from sales and use tax.

I. Discussion
1. Hart and McGinley
Appellants, architectural planning and preservation consultants, furnished reports to the Massachusetts Department of Public Works (DPW) containing appellants' assessment of the environmental impact of a DPW construction project.

Pursuant to a contract, appellants were required to prepare and reproduce the reports as directed by DPW, with reproduction costs to be reimbursed by DPW. Appellants were allowed to keep two copies of the reports; however, the reports were designated as the property of DPW and appellants were precluded from using or disclosing their contents.

The contract also provided that appellants were required to obtain prior approval from DPW for reimbursable direct expenses incurred in their performance of the contract, and that DPW's exemption certificate applied to goods and services purchased by appellants.

Appellants presented the exemption certificate to vendors when copying the reports and paid no sales tax on the copying charges; the Commissioner subsequently assessed use tax on the charges.

Finding no "use" by appellants for purposes of use tax under G.L. c. 64I, §§ 1 and 2, the Board held that the appellants were the agents of DPW: "finding that DPW possessed ownership and control of the subject property [for use tax purposes] support[s] the further conclusion that appellants were the agents of DPW in dealing with vendors to get the reports copied." Although designated as independent contractors in the contract, "appellants' professional independence did not extend to control of the reports...[Their] discretion had clearly ended when the information they developed was reduced to required reports provided [by them] in multiple copies to [DPW]." The Board also noted that DPW's exemption certificate "manifested the authority requisite to treating appellants' copying arrangements as acts of the principal, DPW, and not their own."

Applying the common law agency "reasoning" used in Rich-Taubman Assoc. v. Commissioner of Revenue Services, 674 A. 2d 805 (1996), the Board noted that in Hart and McGinley, "appellants paid to produce [the] reports, not on their own behalf, but at the direction of a tax-exempt governmental entity [DPW]. As a conduit for DPW in the transactions at issue, appellants themselves lacked the status of 'purchasers' for sales and use tax purposes. The exempt status of the actual purchaser of the reports, DPW, was determinative of the applicability of the use tax. DPW was clearly exempt from such taxation...."

2. Araserve
Appellant provided cafeteria management services for various tax exempt educational institutions with which it had contracted, and received reimbursement from the institutions for the costs of supplies it purchased "on behalf of" the institutions.

Appellant generally determined what supplies would be purchased; however, pursuant to the contracts, purchases by appellant were subject to the institutions' review and approval and title to the supplies remained in the institutions' names. Although appellant managed the dining service, the institutions also employed their own dining service supervisors and employees.

The Board found appellant was under the supervision and control of the institutions and therefore was the agent of the institutions. As such, appellant was not the owner of, nor did it have control over, the supplies it purchased. Since the institutions and not appellant were the users of the supplies, the Board disallowed the Commissioner's assessment of use tax against the appellant pursuant to G.L. c. 64I, §§ 1,2.

The "course of dealings" between appellant and the institutions which demonstrated the institutions' intent that appellant act as their agent and appellant's willingness to so act was a significant factor in the Board's decision, as was the contractual language which specified that appellant purchased supplies "on behalf of" the institutions. Also significant in the Board's decision was the fact that pursuant to the contracts appellant's purchases were subject to the institutions' approval and the institutions retained title to the supplies purchased.

II. Conclusion
Purchases of tangible personal property by a non-exempt party on behalf of an exempt entity are exempt from sales and use tax if the party is the agent of the entity. This TIR supersedes any previously announced position by the Department to the extent that such position is inconsistent with this TIR. This TIR is retroactive with respect to all open tax periods. See 830 CMR 62C.3.1(7)(f).

Bernard F. Crowley, Jr.
Acting Commissioner of Revenue

TIR- 99-4

February 25, 1999