Directive  Working Draft Directive - Taxation of the Sale or Rental of Certain Cable Television Transmission Receivers

Date:	02/25/2025
Referenced Sources:	Massachusetts General Laws

I. Introduction

The retail sale of tangible personal property in Massachusetts is subject to the sales tax. G.L. c. 64H, § 2. The Massachusetts use tax complements the Massachusetts sales tax and is imposed on the purchase of tangible personal property for use, storage, or other consumption in Massachusetts. G.L. c. 64I, § 2. However, materials, tools, and fuel that “are consumed or used directly and exclusively … in the operation of commercial … television transmission” are exempt from sales and use tax. G.L. 64H, § 6(r) (emphasis added). Also, sales of machinery, or replacement parts thereof, that are “used directly and exclusively … in the operation of commercial … television transmission” are also exempt from sales and use tax. G.L. 64H, § 6(s) (emphasis added).

Cable converter boxes, set-top boxes, and cable system terminal devices (together, the “Devices”), connect a cable system to a television or other equipment designed to receive television pictures that are broadcast simultaneously with sound on certain television channels (TV broadcast receiver). In Directive 08-5, the Department evaluated G.L c. 64H, §§ 6(r) and 6(s) and concluded that pursuant to these sections the “sales and rentals of cable television converter boxes to Massachusetts cable television customers are exempt from sales and use taxes.” However, the cable television converter boxes addressed in Directive 08-5 functioned “only for the purpose of receiving programming or information from the cable provider, or for implementing parental controls.” Directive 08-5. This Directive explains that the sale or rental of a Device with the ability to do more than connect a cable system to a TV broadcast receiver does not qualify for the exemptions under G.L. c. 64H, §§ 6(r) and 6(s) because such Devices are not used “exclusively” in the operation of commercial television transmission.

II. Issue

Under what circumstances is the sale or rental of a Device to Massachusetts cable television customers exempt from sales or use tax under G.L. c. 64H § 6(r) or § 6(s)?

III. Directive

A sale or rental of a Device to Massachusetts cable television customers will qualify as an exempt sale pursuant to G.L. c. 64H § 6(r) and 6(s) if the Device’s functionality is limited to (i) receiving programming or information from a cable provider for the purpose of television transmission and (ii) implementing parental control functions. If the Device can do more than connect a cable system to a TV broadcast receiver, and allow for parental controls, it will not qualify for the exemption.

IV. Discussion

Massachusetts imposes a 6.25% sales tax on all retail sales of tangible personal property in Massachusetts, unless the sale is otherwise exempt. G.L. c. 64H, § 2. The term "sale" includes any transfer of title or possession or both and includes a lease or rental. G.L. c. 64H, § 1. Under G.L. c. 64H, § 6(r), “sales of materials, tools and fuel” are exempt from tax if they “are consumed or used directly and exclusively … in the operation of commercial … television transmission.” Also, under G.L. c. 64H, § 6(s), “sales of machinery, or replacement parts thereof” are exempt from tax if they “are consumed and used directly and exclusively … in the operation of commercial radio broadcasting or television transmission.”

In Directive 08-5, the Department stated that “sales and rentals of cable television converter boxes to Massachusetts cable television customers are exempt from sales and use taxes.” However, the cable television converter boxes addressed in Directive 08-5 functioned “only for the purpose of receiving programming or information from the cable provider, or for implementing parental controls.” Directive 08-5. Directive 08-5 did not address cable television convertor boxes or other Devices that perform other material functions, such as enabling on demand video rentals and purchases, game-play, recording, storage, and playback of programming, etc. Therefore, Directive 08-5 remains valid with respect to the Devices described therein. Directive 08-5, however, does not apply to Devices that can perform functions other than receiving programming or information from the cable provider, or implementing parental controls.

The sale or lease of a Device that will be used directly and exclusively in the operation of television transmission remains exempt from sales and use tax under G.L. c. 64H, §§ 6(r) and 6(s). A Device is used directly and exclusively in the operation of television transmission if the Device’s functions, other than parental controls, are limited to receiving programming or information from a cable provider for the purpose of television transmission, such as receiving and converting television signals for end-user viewing.

In contrast, a Device that does more than receive programming or information from a cable provider for the purpose of television transmission is not entitled to the exemption, as it is not used exclusively in the operation of commercial television transmission. Specifically, a Device with additional features including, but not limited to, the ability to (i) schedule, record, locally store and play back recorded content for later viewing, (ii) access or run software applications such as web-based content streaming services, games, productivity tools, or other non-television applications, or (iii) transmit recorded content to a smartphone or tablet or access recorded content from another digital video recorder, is not exclusively used in the operation of commercial television transmission, and therefore is not exempt under G.L. c. 64H, §§ 6(r) and 6(s).
 

WORKING DRAFT FOR PRACTITIONER COMMENT - 2/25/25