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Sales and Use
You ask for a ruling on the application of the Massachusetts sales and use tax to conference bridging services sold by your client, ******************************* (“Taxpayer”), to customers in Massachusetts. Taxpayer is organized as an L.L.C. and has a business address at **************************, Delaware 19702. You have provided the following facts on which this ruling is based.
Taxpayer provides teleconferencing services, also known as conference bridging services, to customers throughout the United States and occasionally to foreign locations. The process is initiated by the customer calling a toll free or long distance phone number provided by the Taxpayer. You state that Taxpayer’s equipment provides only the bridging service; the telecommunications services to provide the toll free number are purchased by Taxpayer from an unrelated vendor. Taxpayer’s equipment is located in the state of Delaware, which does not impose a sales or use tax. The taxpayer pays applicable fees, taxes, surcharges, and transmission charges to the taxpayer’s telecommunications supplier for use of the 800 line and does not separately assess its customers a per minute charge for the toll free line associated with the conference call.
Each call is routed to the taxpayer’s conference bridging equipment where all incoming conference participants are connected to one conference call. The conference bridging equipment is located 100% outside of the Commonwealth of Massachusetts. A teleconferencing service involves transmitting, conveying, or routing of voice signals between and among communication lines, which occurs at the conference bridge. If not for the conference bridge there would be no transmission or routing of signals between and among participants in a teleconference.
The taxpayer does not currently maintain a business location or any tangible equipment or property in the Commonwealth of Massachusetts. Some Massachusetts sales are generated by Independent Contractor Sales Agents (“Subcontractors”) who perform sales solicitation for numerous companies throughout the United States as well as the Taxpayer. Taxpayer asserts that the Subcontractors are not employees as their actual time spent in Massachusetts is undeterminable by the taxpayer and their sales activities are not supervised by the taxpayer. In addition, the Subcontractors are given a minimum price by the taxpayer and may charge the customer any price they deem appropriate without approval or supervision by the taxpayer. You indicate that Taxpayer intends to hire a permanent Massachusetts employee in the future.
Taxpayer asserts that because the bridging service provided by Taxpayer’s equipment takes place entirely in Delaware that the service is not subject to sales or use tax when sold to customers in Massachusetts. Taxpayer also asserts that it is not engaged in business in Massachusetts within the meaning of G.L. c. 64H, § 1, and that Massachusetts lacks the required nexus with the Taxpayer to assert its taxing jurisdiction.
The conference bridging service is taxable when sold and billed to customers in Massachusetts.1 The activities of its independent sales agents in the Commonwealth are a sufficient physical presence in Massachusetts to create sales and use tax nexus.
Massachusetts imposes a 6.25% sales tax on all retail sales, which include rentals, of tangible personal property and telecommunications services, in Massachusetts, unless otherwise exempt. See G.L. c. 64H, § 2. A complementary use tax is imposed on tangible personal property and telecommunications services purchased for storage, use or consumption in Massachusetts, unless otherwise exempt. See G.L. c. 64I, § 2.
“Telecommunications services” are defined as “any transmission of messages or information by electronic or similar means, between or among points by wire, cable, fiberoptics, laser, microwave, radio, satellite or similar facilities but not including cable television.” G.L. c. 64H, § 1. Taxable telecommunications services include tteleconferencing services, including a conference bridging service that links two or more participants of an audio or video conference call that may include the provision of a telephone number. TIR 05-8, Section VII, A, 7.
Sales of interstate telecommunication services other than mobile telecommunications services, are sourced to Massachusetts for sales tax purposes if the telecommunication is either originated or received at a location in the commonwealth a nd the services are either paid for in the commonwealth or charged to a service address located in the commonwealth. G.L. c. 64H, § 1, definition of “sale at retail.” The Massachusetts statute further provides, “(t)o prevent actual multi-state taxation of any sale of interstate telecommunication service subject to taxation under this chapter, any taxpayer, upon proof that the taxpayer has paid a tax in another state on such sale, shall be allowed a credit against the tax imposed by this chapter to the extent of the amount of such tax properly due and paid in such other state.”
Massachusetts asserts sales and use tax jurisdiction over out-of-state vendors to the fullest extent allowed under current constitutional limitations. See, generally, Quill Corporation v. North Dakota, 504 U.S. 298 (1992) and TIR 96-8. The presence of salespeople soliciting orders for a vendor may create nexus in the state where such activities are conducted, even if the salespeople are contractually treated as “independent contractors” and simultaneously represent other vendors. Scripto, Inc. v. Carson, 362 U.S. 207 (1960).
The Department’s Public Written statements have previously stated that conference bridging services fall under the broad definition of taxable telecommunications services, however, the sourcing rules in G.L. c. 64H, § 1, only source the service to Massachusetts where a call begins or ends in the Commonwealth and the services are either paid for in the commonwealth or charged to a service address located in the commonwealth. Those requirements are satisfied by the provision of an “800” number which the Massachusetts customer (with a Massachusetts billing address) can access toll-free from its Massachusetts location in order to reach the bridging service.2 The purchase of the “800” service from an unrelated telecommunications provider for resale to Taxpayer’s customers in a bundled transaction does not change that sourcing result. Taxpayer is located in Delaware, which has no sales tax, and no issue is raised with respect to sales tax paid to another jurisdiction on either the “800” number or the bridging service. The activities of Taxpayer’s independent sales representatives are sufficiently similar to those described in Scripto to create Massachusetts sales and use tax nexus. Since Taxpayer has come forward voluntarily, it may file with the Voluntary Disclosure Unit of the Audit Division under the provisions of TIR 11-1.
Very truly yours,
Commissioner of Revenue