I. Introduction:

The purpose of this TIR is to clarify, following the decision of the Appellate Tax Board ("A.T.B.") in The Neiman Marcus Group, Inc. v. Commissioner of Revenue, A.T.B. Docket No. F245638 (2001), when a Massachusetts retail store must collect sales tax on merchandise shipped out-of-state at its customer's request. The retail industry commonly refers to these sales as "send" and "gift-send" transactions.

The general rules concerning sales and use tax contained in the Department's regulation at 830 CMR 64H.6.7, Out-of-State Sales and Deliveries, are unchanged. The Neiman Marcus decision applies these existing rules to a specific factual situation. The decision and TIR 01-14 are only applicable to specific situations where a retail customer is in Massachusetts at the time the sale is made. In situations that are not addressed by this TIR, vendors should continue to rely on 830 CMR 64H.6.7. (1)

II. Background:The Massachusetts sales tax is imposed on transfers of title or possession, or both, of tangible personal property to a retail purchaser or the purchaser's designee within the Commonwealth. G.L. c. 64H, § 1, 2. Sales in which the in-state customer of a Massachusetts vendor requests that merchandise be delivered to an out-of-state address can fall into two categories:

a. "Send" Transactions

A typical "send" transaction involves a customer at a Massachusetts retail store having merchandise shipped to himself or herself at an out-of-state address, such as a summer home. Sales that a vendor is obligated to deliver to a purchaser outside the commonwealth are generally exempt, whether or not the purchaser is physically present in the Commonwealth at the time of the sale. See G.L. c. 64H, § 6(b). (2)

With respect to merchandise shipped to the purchaser out-of-state by a vendor, the Department's regulation on Out-of-State Sales and Deliveries, 830 CMR 64H.6.7(3)3, provides, in relevant part:

If the vendor is obligated by an agreement to deliver the property to its purchaser outside Massachusetts (whether by interstate carrier or in the vendor's own truck) the sale is exempt.

b. "Gift-Send" Transactions

A typical "gift-send" transaction involves a customer at a Massachusetts retail store who requests that merchandise be sent to an out-of-state recipient (other than the purchaser). With respect to merchandise shipped by a Massachusetts vendor to an out-of-state recipient designated by its customer in Massachusetts, the Department's regulation on Out-of-State Sales and Deliveries, 830 CMR 64H.6.7(3)4, provides, in relevant part:

If the vendor is obligated by an agreement to deliver the property to the purchaser's designee outside Massachusetts and the purchaser is within Massachusetts when the order for the property is placed, the sale will generally be taxable unless both title to and possession of the property pass outside Massachusetts.

For purposes of this provision, the regulation refers to Uniform Commercial Code ("U.C.C.") provisions to determine when and where title passes. That is, if the contract specifies when title passes, then the contract controls. If the contract is silent, the regulation states that where delivery is made by the vendor (for example, in the vendor's own truck), then title typically does not pass until delivery is completed at the final destination of the goods, the point at which the vendor completes its performance with respect to delivery of the goods. This is sometimes described as a "destination contract." However, when the property is delivered to an interstate carrier for delivery to the purchaser's designee, title typically passes in Massachusetts when the goods are entrusted to the carrier because it is at that point that the vendor completes its performance with respect to delivery of the goods. Such a sale is taxable. This is sometimes described as a "shipping point contract." See generally 830 CMR 64H.6.7(3)5.

III. The Neiman Marcus Decision:In the facts of the case decided by the A.T.B., the taxpayer, described in the decision as "a vendor of upscale merchandise . . . (that) upholds a rigorous standard of customer service and satisfaction" had a policy that it would assume all responsibility for merchandise that was lost or damaged in the course of shipping and self-insured for such losses. If merchandise in a "send" or "gift-send" transaction was lost or damaged, the taxpayer had an unconditional policy that the customer was entitled to a refund or replacement of the merchandise. While the Neiman Marcus customer service policy was communicated directly to its sales associates and indirectly to its retail customers, there was no formal sales contract executed in connection with purchases. The only written record of the sales transaction was the receipt that was given to the customer, which contained basic information identifying the sale, e.g., the item purchased, the price, shipping and handling charges, sales tax, information as to the customer and the recipient, and internal codes identifying the transaction. The sales receipt did not contain terms or conditions of sale or limitations on liability.

In determining whether the contract between Neiman Marcus and its retail customer was a "destination" contract or a "shipping point" contract, the A.T.B. considered Neiman Marcus' custom and practice in dealing with its customers. The Board concluded that the entire agreement between the parties, including the course of dealing and usage of trade, established that the contract was a destination contract within the meaning of the U.C.C. Since the send and gift-send transactions were destination contracts, Neiman Marcus was not obligated to collect Massachusetts sales tax.

IV. Application of the Decision:

A Massachusetts store that is obligated by an agreement to deliver taxable merchandise to its retail customer at an out-of-state address (a "send" transaction) or obligated by an agreement to deliver taxable merchandise to an out-of-state recipient designated by its retail customer in Massachusetts (a "gift-send" transaction) is generally not required to collect Massachusetts sales tax on the sale if title to and possession of the property pass out-of-state. In determining where title and possession pass, the Commissioner will consider any written contract between the store and its customer, the terms of any contract between the store and its contract or common carrier, as well as the store's established custom and practice in dealing with its retail customers. Generally, a Massachusetts retail store is not required to collect tax under the following circumstances:

a. If there is a written contract between the store and its retail customer specifying that title passes at the out-of-state destination of the goods (a "destination contract"), or

b. If there is no written contract between the store and the retail customer concerning passage of title, when the vendor establishes that it intended to create a "destination contract" through the existence of a customer service policy that unconditionally guarantees arrival of the merchandise at its out-of-state destination, regardless of the shipping method (i.e., whether shipped via the vendor's truck or via interstate common carrier). (3) The burden of proving the existence of such a policy is on the vendor. (4)Where the Massachusetts store has out-of-state branch stores that ship taxable tangible personal property to Massachusetts recipients, the vendor's out-of-state stores must collect and remit Massachusetts tax on those sales. (5)

/s/Bernard F. Crowley, Jr.,
Bernard F. Crowley, Jr.,
Acting Commissioner of Revenue

August 28, 2001

TIR 01-14

Footnotes:1. For specific rules concerning out-of-state shipments by printers, see 830 CMR 64H.6.2.

2. G.L. c. 64H, § 6(b) exempts from tax "(s)ales of tangible personal property in transit or stored at points of entry intended for export or import or which the vendor is obligated under the terms of any agreement to deliver (1) to the purchaser outside the commonwealth or to a designee outside the commonwealth of a purchaser outside the commonwealth or (2) to an interstate carrier for delivery to a purchaser outside the commonwealth or to a designee outside the commonwealth of a purchaser outside the commonwealth."

3. The advice in Example 8 of 830 CMR 64H.6.7, as promulgated March 30, 1990, should be construed as limited to situations where the vendor does not have such a customer service policy.

4. Documentation that a vendor may use to establish the existence of such a policy includes, but is not limited to written company policy explaining the refund or replacement policy on merchandise that is lost or damaged while being shipped by common carrier, training manuals for sales associates that explain the store's custom and practice in dealing with customers who have had merchandise lost or damaged in shipment, or copies of shipping contracts between the store and its common carrier.

5. See DD 98-5 regarding the inclusion of shipping and handling charges in the sales price subject to tax. Generally, shipping and handling charges may not be excluded from the "sales price" subject to tax if the contract between the vendor and its customer establishes that the intention of the parties is for title to transfer on delivery, i.e., a destination contract.