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Letter Ruling

Letter Ruling Letter Ruling 01-2: Sales and Use Tax Treatment of Magnetic Resonance Imaging Equipment and Services

Date: 01/22/2001
Organization: Massachusetts Department of Revenue
Referenced Sources: Massachusetts General Laws

Sales and Use Tax

January 22, 2001


You ask for a letter ruling on behalf of *************** ("Company") regarding the proper Massachusetts sales and use tax treatment under G.L. chs. 64H, and 64I, respectively, to the transfer by Company of Magnetic Resonance Imaging ("MRI") equipment in connection with the provision of MRI services as described below. Specifically, you request a ruling that the transfer of MRI equipment between the Company and various medical providers ("Providers") constitutes a lease or rental of tangible personal property and is subject to sales tax.


For reasons discussed below, we conclude that the transfer of MRI equipment by Company to Provider in conjunction with MRI services is not a lease or rental of tangible personal property. Rather, the equipment is used by Company in providing its MRI services. Accordingly, Company must pay a use tax on its purchase of the MRI equipment.


In support of your request, you state the facts as follows. Company, with operations located in Massachusetts and various other states, is in the business of providing MRI equipment to Providers. In connection with providing this equipment, Provider and Company enter into a binding written agreement ("Agreement").

Company's relevant responsibilities are as follows. Company must provide a professional and licensed driver to transport the mobile unit to and from Provider's location. Company is responsible for hiring and training personnel to operate the equipment properly. These individuals are commonly referred to as technicians and are responsible for operating the equipment under a physician's supervision. The physician must be a trained certified radiologist and is the employee of Provider. Company is responsible for compensating the technicians, for obtaining the licenses and permits for the transportation and operation of the equipment, and for providing insurance including worker's compensation for the technicians, theft and casualty insurance for the equipment, and insurance coverage with respect to the operation of the equipment. Company must also provide professional liability insurance (malpractice insurance) which covers Company, and all of Company's personnel. Company's cost for the equipment exceeds fifty percent (50%) of the total charge for the MRI and technician.

Provider's responsibilities are as follows. The Provider must use Company's equipment and services on an exclusive basis. The Provider is responsible for providing the electrical power and telephone service to the equipment, as well as for providing the appropriate equipment and procedures to facilitate the delivery and retrieval of the patients into and from the mobile unit. Each Provider is responsible for providing a physician together with such other radiologic personnel as may be required to assist the physician. These personnel perform all tasks of general supervision, diagnosis, and patient care during the period when such medical Provider's patients are in the mobile unit. The physician is solely responsible for reading and/or determining the results of the use of the equipment while under the physician's supervision.


Massachusetts imposes a five percent sales tax on sales at retail of tangible personal property by any vendor in Massachusetts. See G.L. c. 64H, § 2. A "sale at retail" is a sale of tangible personal property for any purpose other than resale in the regular course of business. G.L. c. 64H, § 1. A sale is also defined to include any transfer of title or possession for consideration, including a lease or rental. See G.L. c. 64H, § 1. Included within the definition of a sale is "[a] transfer for consideration of title or possession of tangible personal property which has been produced, fabricated, or printed to the special order of the customer, or of any publication." G.L. c. 64H, § 1. However, professional, insurance, or personal service transactions which involve no sale or which involve sales as inconsequential elements for which no separate charges are made are excluded from the sales tax.

The sales price upon which the excise is based is "the total amount paid by a purchaser to a vendor as consideration for a retail sale, including the cost of materials used, 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." See G.L. c. 64H, § 1. 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 ("Department"). See G.L. c. 64H, §§ 2, 3.

Under the facts you describe, the provision of MRI equipment pursuant to an agreement to provide MRI services to customers does not constitute a lease or a rental for purposes of G.L. c. 64H. In Letter Ruling 83-62 ("Transportation Charges; Cement; Sales to Federal Government or Commonwealth; Public Works Projects; Equipment Operator Fees"), the Department ruled upon the sales tax consequences of a company's contract to clear land of debris for a customer, using that company's loader and truck operated by company personnel. There, the Department ruled that a contractor's charge for the clearing land of debris was not subject to the sales tax where its customer did not direct or control the contractor's employees in the operation of the equipment. Had the company charged its customers on an hourly or other periodic basis, a taxable lease transaction subject to sales tax would have been presumed to exist.

You assert that under the terms of the Agreement, the equipment cannot be operated without a physician furnished by the Provider. The physician performs or causes to be performed all tasks of general supervision, diagnosis and patient care in accordance with the professional standards established by the industry during the period when Provider's patients are in the mobile unit. However, it is Company's radiologic personnel who actually operate the equipment under the physician's supervision. Since Provider cannot operate the equipment without personnel from Company, Company has operational and legal control of the equipment. Moreover, it is Company's personnel who transport the mobile unit to and from Provider's location. At no time does it appear that there is a transfer of possession and/or title of the equipment.

The facts of this case are analogous to the facts presented in American Totalisator Company, Inc., v. State Tax Commission A.T.B. Docket No. 51977 (Dec. 15, 1969). There, the Massachusetts Appellate Tax Board found that a Maryland corporation engaged in the business of manufacturing, installing, operating and maintaining certain "totalisator" equipment at race tracks throughout the United States, did not lease or rent its equipment in connection with its services. The company provided this equipment pursuant to a written contract with various racing associations to provide certain betting-related services. This equipment totaled amounts wagered on races held at race tracks, computed and displayed the winners, pay-off amounts and the total amounts wagered. Under the terms of each contract, the company agreed to guarantee the operation of automated equipment required to assure the accuracy and efficiency of the services it provided, and the racing association agreed to employ the company to perform certain services and to pay it as compensation certain stated percentages on the average amount of wagers registered by the totalisating machines at its race track on each day of racing. The contract further provided that the Totalisator machine at all times remained in the possession and control of the company, which was also required to furnish a staff of technicians competent to service and maintain the totalisator in continuous and accurate operating condition.

The Appellate Tax Board found that the totalisator equipment was used by the company and that limited use in performing its contract with the racing associations of the machine by ticket sellers employed by its customers did not remove the property from the general control and management of the company. The Board found that the appellant was solely responsible for the accuracy of the racing information computed and displayed by the Totalisator and found that the Company actually had possession of and controlled the Totalisator. The instructions of the track officials to the company's employees as to the start of a race, or as to the winners of a race, was not found to constitute a use of the equipment by the racing associations. The board also concluded that the racing information developed and displayed by means of the use of the Totalisator and the dominant use of that equipment by the company constituted "services rendered by the appellant to the various racing associations and did not constitute a lease or rental of the equipment." Id.

Similarly, the MRI equipment at issue is not transferred to its customers. It remains under the dominant control of the Company and is used by the Company in the provision of its MRI services.


The provision of MRI equipment under the facts you describe is not a lease or rental of tangible personal property. Accordingly, Company, as the consumer of the MRI equipment that it uses in Massachusetts in the provision of its services, is obligated to pay use tax on the equipment at the time of purchase.

Very truly yours,

/s/Frederick A. Laskey

Frederick A. Laskey
Commissioner of Revenue


LR 01-2

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