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Letter Ruling Letter Ruling 98-12: Application of G.L. c. 64H, s. 6(i) Exemption Where Lessee is Engaged in Manufacturing

Date: 08/25/1998
Organization: Massachusetts Department of Revenue
Referenced Sources: Massachusetts General Laws

Sales and Use Tax

August 25, 1998

You request a ruling on behalf of *************** ("Taxpayer") concerning the application of c. 64H, § 6(i). Your question is whether the § 6(i) exemption can be asserted by a lessor based upon the manufacturing use of a lessee.


The taxpayer owns the building at *************** (the "Premises"). The Premises are leased by the Taxpayer to a single entity, ("Lessee"). The Lessee manufactures medical devices. The Taxpayer does not occupy or use the Premises, but rather functions merely as a lessor.

The Lessee uses all of the electricity received at the Premises. For the purposes of this ruling, we assume that more than 75% of the electricity is used for manufacturing. The Lessee pays rent to the Taxpayer, but does not separately pay for its electricity use. The Taxpayer applies the rent received from the Lessee to, inter alia, pay the electricity bill for the Premises.


Chapter 64H, § 6(i) provides an exemption for the sale of electricity "consumed and used directly an exclusively in an industrial plant in the actual manufacturing of tangible property to be sold." G.L. c. 64H, § 6(i). This exemption is allowed with respect to a metered building at which not less than seventy-five percent of the electricity consumed is used for the purposes of manufacturing. Id.

The application of c. 64H, § 6(i) requires only that the electricity purchased be used in the specified manner. In this case the electricity is used in the manner prescribed. See Commissioner v. Purity Supreme, 396 Mass. 287 (1985) (concluding that compositions purchased by a grocery store to create newspaper supplements that are included in newspapers published by a third party are "consumed and used" in the "publishing of a newspaper"); Houghton Mifflin Co. v. State Tax Commission, 373 Mass. 772 (1977) (concluding that reproduction proofs purchased by a publisher to be used by a third party to print books are "consumed and used" in the "process of manufacturing").

It is not relevant for purposes of c. 64H, § 6(i) that the Taxpayer and not the Lessee pays the electricity bill for the Premises. As a practical matter, the Lessee pays for the electricity each time it submits a rent check to the Taxpayer. See LR 93-4 (concluding that the § 6(i) exemption for electricity used for residential purposes applies when the lessor and not the lessee pays for the electricity).


We conclude that c. 64H, § 6(i) is not rendered inapplicable by virtue of the fact that the party paying the electricity bill is the lessor of the premises, while the party using the premises is the lessee. However, we note that the § 6(i) exemption has specific use requirements, including the 75% test, which have to be continually met for the § 6(i) exemption to apply.

Very truly yours,

/s/Mitchell Adams

Mitchell Adams
Commissioner of Revenue


LR 98-12

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