| Date: | 04/08/1998 |
|---|---|
| Organization: | Massachusetts Department of Revenue |
| Referenced Sources: | Massachusetts General Laws |
Sales and Use Tax
April 8, 1998
You have requested a letter ruling on the sales tax consequences to *************** ("Company") as a result of shifting shipping and insurance costs to customers for out-of-state deliveries to the customers or their designees.
Facts
The Company is incorporated in Delaware but is engaged in business and headquartered in Massachusetts. Among other things, the Company sells products to business customers for use in their employee recognition programs. These products include jewelry, emblems, and other decorative items. The Company currently ships the various products, at the customer's request, to either the customer's headquarters, to local or regional offices or business locations, or directly to individual employees. The shipping destinations may be either located within Massachusetts or out-of-state. In the past, the Company used common carriers for the shipping and paid for it directly.
Some customers have recently informed the Company that they intend to assume responsibility for shipping costs and insurance. These customers will arrange for an interstate carrier to pick up the products at the Company's Massachusetts warehouse. Title to the products in all these transactions will pass in Massachusetts.
The Company anticipates that the following types of out-of-state deliveries will occur:
1) The customer is headquartered outside Massachusetts and purchases products from the Company. The customer has no office, business location or employees located in Massachusetts. The customer contracts with and pays an interstate carrier to pick up the products from the Company for delivery. The products are delivered to the customer's out-of-state office or business location or to a specific employee's address. No deliveries are made in Massachusetts.
2) The customer is headquartered outside Massachusetts and purchases products from the Company. The customer has a sales office located in Massachusetts. The customer contracts with and pays an interstate carrier to pick up the products for delivery from the Company. The products are delivered to the customer's out-of-state office or business location or to a specific employee's address. No deliveries are made to the customer's office or employees in Massachusetts.
3) The customer ordering products from the Company is an out-of-state office or business location of a Massachusetts based company. The customer contracts with and pays an interstate carrier to pick up the products from the Company for delivery. The products are delivered to the customer's out-of-state office or business location or to a specific employee's out-of-state address. No deliveries are made to the customer's headquarters or employees in Massachusetts.
4) The customer is headquartered in Massachusetts and purchases products from the Company. The customer contracts with and pays an interstate carrier to pick up the products from the Company for delivery. The products are delivered a) to the customer's out-of-state office or business location or b) to a specific employee's out-of-state address. No deliveries are made to the customer's headquarters or employees in Massachusetts.
In addition, you ask what records the Company is required to maintain in order to document the deliveries by the Company to interstate carriers for delivery out-of-state.
Discussion
Massachusetts imposes a five percent sales tax on all sales at retail in Massachusetts by any vendor, unless otherwise exempt. G.L. c. 64H, § 2. A "retail sale" 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" includes "any transfer of title or possession, or both, . . . of tangible personal property . . . for a consideration, in any manner or by any means whatsoever. . . ." G.L. c. 64H, § 1. However, "sales of tangible personal property in transit . . . or which the vendor is obligated under the terms of any agreement to deliver (1) to a 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" are exempt from the sales tax. G.L. c. 64H, § 6(b).
When the customer is an out-of-state purchaser, as in Example 1, and the Company is obligated to deliver to an interstate carrier for delivery to the out-of-state customer or its designee outside the Commonwealth, the sale is exempt. See G.L. c. 64, § 6(b)(2), 830 64H.6.7(3)(a)(3),(4) and Examples 4 and 6 and Letter Ruling 81-101.
In Example 2 where the Company is required by agreement to deliver products to an interstate carrier for delivery to a purchaser outside the Commonwealth, the sale is exempt from taxation under G.L. c. 64H, § 6(b)(2) and the Company is not required to collect the sales tax. See 830 64H.6.7(3)(a)(3), Examples 4 and 10, and Letter Ruling 81-104.
Where the Company receives an order from an out-of-state purchaser and is required by agreement to deliver products to an interstate carrier to the purchaser's out-of-state designee, the sale is exempt because both the purchaser and the employee are located out-of-state. See G.L. c. 64H, § 6(b)(2), 830 CMR 64H.6.7(3)(a)(4) and Examples 6 and 10.
In Example 3, the customer's corporate headquarters are in Massachusetts. The customer is an out-of-state office or business location. Since the Company is required by agreement to deliver products to an interstate carrier for delivery to the customer's business location or office outside the Commonwealth, the sale is exempt. See G.L. c. 64H, § 6(b)(2), 830 64H.6.7(3)(a)(3), Examples 4 and 10, and Letter Ruling 81-104.
If the Company receives an order from an out-of-state purchaser and is required by agreement to deliver products to an interstate carrier to be delivered to an out-of-state employee or designee of the customer, the sale is exempt. See G.L. c. 64H, § 6(b)(2), 830 CMR 64H.6.7(3)(a), (4) and Example 6.
In Example 4(a), the customer is headquartered in Massachusetts. The Company delivers the product to an interstate carrier, which the customer contracts and pays for, for delivery to the customer's offices or business locations outside the Commonwealth. The sale is exempt. Although the customer is headquartered in Massachusetts, because it has offices outside the state to which the products are delivered, there is delivery to a purchaser outside the Commonwealth for purposes of the G.L. c. 64H, § 6(b)(2) exemption. See G.L. c. 64H, § 6(b)(2), 830 CMR 64H.6.7(3)(a)(3) and Examples 4 and 10 and Letter Ruling 81-104.
However, in Example 4(b) where the customer is in Massachusetts and the products are delivered to the employee's home outside of Massachusetts, the sale will not be exempt under G.L. c. 64H, § 6(b)(2) because there is no "purchaser outside the Commonwealth" and the title passes in Massachusetts. See 830 CMR 64H.6.7(3)(a)(5) and Example 11.
The Company is required to maintain books and records under G.L. c. 62C, § 25 sufficient to substantiate taxable and tax-exempt sales. In the regulation, Out-of-State Sales and Deliveries, 830 CMR 64H.6.7, the special requirements to substantiate sales of tangible personal property sold for delivery out-of-state are listed in the compliance section at 830 CMR 64H.6.7(4)(a)(2).
Conclusion
Generally, if sales of tangible personal property are made in accordance with M.G.L. c. 64H, § 6 (b)(2), where goods are delivered to an interstate carrier for delivery to a purchaser outside of the Commonwealth or to a designee outside the state of an out-of-state purchaser, the sale is exempt. However, if the products are sold to a purchaser within Massachusetts for delivery to his designee out-of-state, the sale will be taxable, unless both title and possession pass outside Massachusetts.
Very truly yours,
/s/Mitchell Adams
Mitchell Adams
Commissioner of Revenue
MA:HMP:jet
LR 98-10