Proposed

830 CMR 64H.1.8: Sales Tax Holiday (PROPOSED REGULATION)

Date: 07/12/2019
Organization: Massachusetts Department of Revenue
Regulatory Authority: Massachusetts General Laws
Official Version: Published by the Massachusetts Register

This proposed regulation has been filed with the Massachusetts Secretary of State's Office and a Notice of Public Hearing is expected to be published in the Massachusetts Register on July 26, 2019. The regulation is unofficial until it is published in the Massachusetts Register.
 

830 CMR DEPARTMENT OF REVENUE
830 CMR 64H.00: SALES AND USE TAX
830 CMR 64H.1.8: Sales Tax Holiday

Table of Contents

(1) Scope of Regulation; Background; Outline of Topics; Effective Date

(a)   Scope of Regulation.  830 CMR 64H.1.8 sets forth the rules for the exemption from the sales and use tax on retail sales of certain tangible personal property for the annual sales tax holiday. 

(b)   Background.  Massachusetts General Laws Chapter 64H, § 6A provides for a Massachusetts “sales tax holiday weekend,” i.e., two consecutive days during which most purchases made by individuals for personal use, including the purchase of meals, will not be subject to Massachusetts sales or use taxes. The legislation provides that the sales tax holiday will occur annually, on a two-day weekend designated by the general court by joint resolution no later than June 15. If the general court fails to adopt such a joint resolution, the Commissioner of Revenue shall, no later than July 1, designate a 2-day weekend in August of that year as the annual sales tax holiday.

For the purposes of the annual sales tax holiday, tangible personal property shall not include telecommunications services, tobacco products subject to the excise imposed by M.G.L. c. 64C, marijuana or marijuana products, as defined in M.G.L. c.  94G, § 1, alcoholic beverages, as defined in section 1 of chapter 138, gas, steam, electricity, motor vehicles, motorboats or a single item the price of which is in excess of $2,500.                

(c)    Outline of Topics.  830 CMR 64H.1.8 is organized as follows:

(1) Scope of Regulation; Background; Outline of Topics; Effective Date;
(2) Definitions;
(3) Transactions Qualifying for the Sales Tax Holiday;
(4) Excluded Sales;
(5) Transactions Occurring Prior To or After the Sales Tax Holiday;
(6) Internet Sales;
(7) Responsibilities of Vendors;
(8) Penalties.                

(d)   Effective Date.  830 CMR 64H.1.8 is effective for sales tax holidays occurring on or after January 1, 2019.

(2) Definitions

For the purposes of 830 CMR 64H.1.8, the following terms have the following meanings:

Commissioner.  The Commissioner of Revenue or the Commissioner's duly authorized representative.

Retail Sale.  Retail sale as defined in M.G.L. c. 64H, § 1. 

Sale.  Sale as defined in M.G.L. c. 64H, § 1.    

Sales Price.  Sales price as defined in M.G.L. c. 64H, § 1.

Sales Tax. The sales tax imposed pursuant to M.G.L. c. 64H, § 2 or the use tax imposed pursuant to M.G.L. c. 64I, § 2. 

Sales Tax Holiday.   A Saturday and Sunday occurring concurrently in August, during which most purchases of tangible personal property made by individuals for personal use or consumption will not be subject to Massachusetts sales or use taxes. 

Tangible personal property.  Tangible personal property as defined in M.G.L. c. 64H, § 1.

Vendor.  Vendor as defined in M.G.L. c. 64H, § 1 and M.G.L. c. 64I, § 1.

(3) Transactions Qualifying for the Sales Tax Holiday

(a)    General Rule.  During the sales tax holiday, most purchases by individuals of single items of tangible personal property costing $2,500 or less, including meals, are exempt from sales and use taxes, subject to certain exclusions as explained in 830 CMR 64H.1.8.  For all purchases of tangible personal property eligible for the sales tax holiday exemption, transfer of possession of or original payment in full for the property must occur on one of the designated days of the sales tax holiday.  The following transactions shall be ineligible for the purposes of the annual sales tax holiday: (i) transactions where a deposit, prepayment or binding promise to pay is made before the designated days of the sales tax holiday; (ii) prior sales; and (iii) layaway sales. Purchases exempt from the sales tax under M.G.L. c. 64H are also exempt from use tax under M.G.L. c. 64I.  Therefore, eligible items of tangible personal property purchased on the sales tax holiday from out-of-state vendors for use in Massachusetts are exempt from M.G.L. c. 64I. 

(b)    Non-Business Sales. The sales tax holiday exemption applies to sales of tangible personal property, including meals, bought by individuals for personal use or consumption only.  Purchases by corporations or other businesses and purchases by individuals for business use remain taxable. 

(c)    Sales Price Threshold for Exemption Eligibility.  When the sales price of any single item or meal is greater than $2,500, sales tax is due on the entire price charged for the item.  The sales price is not reduced by the threshold amount.  For example, if an item is sold for $3,000, the entire sales price of the item is taxable, not just the amount that exceeds $2,500.

1.     Clothing Exception:  Under M.G.L. c. 64H, § 6(k) there is no sales tax on any article of clothing unless the sales price exceeds $175; in that case, only the increment over $175 is subject to tax.  If, on the sales tax holiday, the price of an article of clothing exceeds the threshold, the first $175 may be deducted from the amount subject to tax.  The $2,500 threshold amount is not increased by $175.

Examples                                   

 a.  A customer buys a suit on the sales tax holiday for $600. No tax is due. 

 b.  A customer buys a wedding dress during the sales tax holiday for $2,550.  Tax is due on $2,375 ($2,550 - $175).

2.     Coupons and Discounts.  If a store coupon or discount provided by a vendor reduces the sales price of the property, the discounted sales price determines whether the sales price exceeds the sales tax holiday price threshold of $2,500.  If a store coupon or discount applies to the total amount paid by a purchaser rather than to the sales price of a particular item and the purchaser has purchased both eligible property and taxable property, the vendor should allocate the discount on a pro rata basis to each article sold. 

Example:  A furniture store customer has a coupon for 20% off her entire bill.  She purchases a dining room table for $1,800, and a sofa for $3,500.  The total discount available is $1,060 ($5,300 x .20), of which $360 is attributable to the table ($1,800 x .20), and $700 is attributable to the sofa ($3,500 x .20).  No tax is due on the sale of the table.  Tax of $175 is due on the sales price of the sofa, $2,800 ($3,500 - $700), as even its discounted price exceeds the $2,500 threshold.

3.     Rebates.  A rebate is a refund of an amount of money by the manufacturer of a product to the retail purchaser of the product.  If a vendor sells tangible personal property to a customer who applies a manufacturer's rebate to reduce the sales price at the time of the sale, the rebate is generally treated as a cash discount and is excluded from the sales price. The discounted sales price determines whether the sales price exceeds the sales tax holiday price threshold of $2,500.

If a vendor sells tangible personal property to a customer who will receive a rebate after the sale (e.g., by mailing a coupon to the manufacturer), the full purchase price of the property determines whether the sales price exceeds the sales tax holiday price threshold of $2,500, and tax must be charged on the full purchase price if it exceeds $2,500. 

If a vendor offers a customer a cash discount upon the purchase of tangible personal property, and the customer also receives a rebate from the manufacturer of the property after the sale, only the cash discount given by the vendor is excluded from the sales price for purposes of the sales tax holiday exemption.  The amount of the manufacturer's rebate is not deducted from the sales price.

4.     Multiple Items on One Invoice.  Where a customer is purchasing multiple items in a single transaction on the sales tax holiday, separate invoices do not need to be prepared for each item.  As long as each individual item is $2500 or less, there is no limit on the number of items each customer may purchase that will be entitled to the sales tax holiday exemption. However, any individual item purchased for $2,500 or more is subject to the sales tax.

Example:  In a single transaction on the sales tax holiday, a customer purchases a television costing $1,500, a stereo receiver costing $1,200, and a computer costing $2,000.  The three separate items can be rung up together, all tax-free.

5.     Bundled Transactions.  When several items are offered for sale at a single price, the entire package is exempt if the sales price of the package is $2,500 or less.  Items that are priced separately and are sold as separate articles will qualify for the sales tax holiday exemption if the price of each article is $2,500 or less.

Example 1:  A computer package including a CPU, keyboard, monitor, mouse, and printer with a single sales price of $3,500 would not qualify for the sales tax holiday exemption because the single sales price of the package ($3,500) exceeds the sales tax holiday price threshold of $2,500.

Example 2In a single transaction during the sales tax holiday, a customer purchases a personal computer for $3,000 and a computer printer for $200, each of which is priced separately.  The purchase of the personal computer will not qualify for the sales tax holiday exemption because the sales price ($3,000) is in excess of the sales tax holiday threshold amount of $2,500.  Since the sales price of the computer printer ($200) is less than $2,500, the printer would be exempt from tax. 

Articles normally bundled together and sold as a single unit cannot be priced separately and sold as individual items in order to be eligible for the sales tax holiday exemption. 

(d)   Rentals.  Generally, rentals for thirty days or less of tangible personal property other than motor vehicles and motorboats are eligible for the sales tax holiday exemption, even if the rental period covers days before or after the sales tax holiday, provided that payment in full in an amount less than $2,500 is made during the sales tax holiday.  The sales tax holiday does not apply to rentals or leases of tangible personal property of any type if the term of the rental or lease contract is longer than thirty days.

(e)    Meals.  Sales of meals are eligible for the sales tax holiday exemption.  Sales of meals that are exempt from sales tax under the sales tax holiday exemption are also exempt from the local option meals excise imposed by M.G.L. c. 64L.  “Meals” are defined in M.G.L. c. 64H, § 6(h) as “any food or beverage, or both, prepared for human consumption and provided by a restaurant, where the food or beverage is intended for consumption on or off the restaurant premises, and includes food or beverages sold on a ‘take out’ or ‘to go’ basis, whether or not they are packaged or wrapped and whether or not they are taken from the premises of the restaurant.” M.G.L. c. 64H, § 6(h); 830 CMR 64H.6.5, Sales Tax on Meals. Alcoholic beverages sold as part of a meal do not qualify for the sales tax holiday exemption

(4) Excluded Sales

All sales of motor vehicles, motorboats, telecommunications services, gas, steam, electricity, tobacco products, marijuana or marijuana products, alcoholic beverages and of any single item whose price is in excess of $2,500, do not qualify for the sales tax holiday exemption and remain subject to tax, as further provided in 830 CMR 64H.1.8(4)(a)-(h). 

(a)  Motor Vehicles. Sales of motor vehicles are not eligible for the sales tax holiday exemption.  A “motor vehicle” means a motorized, self-propelled vehicle which is constructed and designed for transportation or travel over a land surface, including “low speed vehicles” and “limited use vehicles”, but not including motorized bicycles.  See M.G.L. c. 90.  A “motor vehicle” also means “snow vehicle” and “recreation vehicle” as defined in M.G.L. c. 90B, § 20.  See 830 CMR 64H.25.1, Motor Vehicles and M.G.L. c. 64H, § 26.  Rentals of motor vehicles are also not eligible for the sales tax holiday exemption; see 830 CMR 64H.1.8(3)(d), Resale and Exempt Use Certificates.

(b)  Motorboats. Sales of motorboats, including jet skis, are not eligible for the sales tax holiday exemption.  A motorboat is any vessel or watercraft propelled by machinery, such as an inboard or outboard motor, whether or not such machinery is the principal source of propulsion.  See M.G.L. c. 90B, § 1.  Rentals of motorboats are also excluded from the sales tax holiday exemption; see 830 CMR 64H.1.8(3)(d).  Generally, the sales tax holiday exemption will apply to purchases of canoes, kayaks, rowboats, and other types of watercraft with no mechanical propulsion, provided that the sales price is $2,500 or less.

(c)  Telecommunications services.  Sales of telecommunications services are not eligible for the sales tax holiday exemption. “Telecommunications services”  are defined in M.G.L. c. 64H as “any transmission of messages or information by electronic or similar means, between or among points by wire, cable, fiber optics, laser, microwave, radio, satellite or similar facilities but not including cable television.”  M.G.L. c. 64H, § 1.  Sales of prepaid calling arrangements and cards are not eligible for the sales tax holiday exemption.  Telecommunications equipment, such as a telephone or cell phone purchased for nonbusiness use, is eligible for the sales tax holiday exemption.

(d) Gas, steam and electricity.  Sales of gas, steam and electricity are not eligible for the sales tax holiday exemption.  The term “gas” refers to natural gas and not gasoline.               

(e)  Tobacco Products.  Sales of tobacco products are not eligible for the sales tax holiday exemption.  The term “tobacco products” includes products subject to the excise under M.G.L. c. 64C such as cigarettes, cigars, and smoking and smokeless tobacco.

(f)   Marijuana or Marijuana products. Sales of marijuana or marijuana products are not eligible for the sales tax holiday exemption.  “Marijuana” includes all parts of any plant of the genus Cannabis, with certain exceptions, as defined in M.G.L. c. 94G, § 1.  Marijuana also includes all “marijuana products” as defined in M.G.L. c. 94G, § 1 and 935 CMR 500.002: Definitions.  Such marijuana products include edible products, beverages, topical products, ointments, oils and tinctures.  See 830 CMR 64N.1.1, Marijuana Retail Taxes.

(g)  Alcoholic Beverages.  Sales of alcoholic beverages, as defined M.G.L. c. 138, § 1, including alcoholic beverages sold as part of a meal provided by a restaurant are not eligible for the sales tax holiday exemption.

(h)  Tangible Personal Property sold for $2,500 or moreAny single item of tangible personal property the price of which exceeds $2,500 does not qualify for the sales tax holiday exemption and remains subject to tax.

(5) Transactions Occurring Prior To or After the Sales Tax Holiday

(a)  Prior Sales and Orders. A sale of tangible personal property is eligible for the sales tax holiday exemption only if transfer of possession of or original payment in full for the property occurs on one of the designated days of the sales tax holiday.  Any transaction where a purchaser places an order and makes a deposit, prepayment or other binding promise to pay for an item of tangible personal property prior to the sales tax holiday is not eligible for the sales tax holiday exemption.  A vendor may not re-book a prior sale that has taken place before the sales tax holiday, either manually or by use of software, in order to cause the prior sale to be eligible for the sales tax holiday exemption. If a purchaser pays 100% of the sales price for an item of tangible personal property on the sales tax holiday, delivery of the tangible personal property may occur after the sales tax holiday, provided the provisions of 830 CMR 64H.1.7(5)(c) are met.

Example 1: Jane is planning a dinner party that falls during the sales tax holiday.  To reserve a caterer, she pays a deposit of 20% of the cost of the meals on a date that is not on the sales tax holiday, with the remainder to be paid on the day of the party. Since a deposit was paid on a date not during the sales tax holiday, the meals purchase cannot qualify for the holiday even if the remainder is paid on a date on the sales tax holiday.              

Example 2: Same facts as above but Jane plans the party one year in advance and pays the caterer in full on a date during the sales tax holiday. The meals purchased for the party qualify for the sales tax exemption since they were paid in full on the sales tax holiday.              

(b)  Layaway Sales.  A layaway sale is a transaction in which property is set aside for future delivery to a customer who makes a deposit, agrees to pay the balance of the purchase price over a period of time and receives the property when the last payment is made. Layaway sales that are initiated prior to the sales tax holiday do not qualify for the exemption, even if the last required payment (or payments necessary to complete the transaction) is made on the sales tax holiday.

(c)  Special Order Items; Transfer of Possession after Sales Tax Holiday.  Special order items such as furniture are eligible for the sales tax holiday exemption so long as they are ordered and paid in full on the sales tax holiday, and the cost of an item is $2,500 or less, even if delivery is made at a later date.  Generally, a customer pays for an item when: (1) the vendor receives payment in the form of cash, a check, or a money order; (2) the vendor receives payment or authorization for payment through the processing of a debit card or credit card transaction; or (3) the buyer and vendor enter into financing arrangements with a third party, including an affiliated entity (but excluding seller financing where the seller extends credit to the customer).  A prior special order purchase with a deposit paid before the sales tax holiday will not qualify for the sales tax holiday exemption, even if the retail customer pays the entire remaining balance due on the sales tax holiday.

(d)  Rain checks.  When a customer receives a rain check because an item on sale was not available, property bought with the use of the rain check will qualify for the sales tax holiday exemption regardless of when the rain check was issued if the rain check is used on the designated days of the sales tax holiday weekend.  Property purchased after the designated days of the sales tax holiday using a rain check issued during the sales tax holiday weekend is not eligible for the sales tax holiday exemption.

(e)  Exchanges.  If a customer purchases an item of eligible property on the sales tax holiday, but later exchanges the item for an identical or similar eligible item for the same price (“an even exchange”), no tax is due even if the exchange is made after the designated days of the sales tax holiday.

(6) Internet Sales

If a customer orders an item of eligible property over the Internet, the item is exempt if it is ordered and paid for on the designated days of the sales tax holiday Eastern Daylight Time (EDT).  A sale is deemed to be ordered and paid for on the sales tax holiday where the customer orders and pays for an item by authorizing the purchase on the vendor’s website, e.g.,  through the use of a credit card at the time the item is ordered.  The actual delivery of the item can occur after the sales tax holiday.        

Example:  A customer orders a computer over the Internet with a sales price of $2,000 and charges the sale to his credit card at 1:00 p.m. (EDT) on  the Saturday of the sales tax holiday. The computer will be delivered 30 days after the sales tax holiday.  The sale is exempt since the computer was ordered and paid for on the sales tax holiday.

(7) Responsibilities of Vendors

(a)  Participation.  All Massachusetts businesses normally making taxable sales of tangible personal property or meals and that are open to conduct business on a designated day of the sales tax holiday must participate in the sales tax holiday. Out-of-state vendors registered to collect Massachusetts sales and use taxes are also required to participate in the sales tax holiday.  Participation in the sales tax holiday is not voluntary.

(b)  Erroneous Collection.  Any sales or use tax erroneously or improperly collected by a vendor on a designated day of the sales tax holiday must be remitted to the Commissioner.  Customers who are erroneously charged sales tax by a vendor for an exempt purchase should take their tax paid receipt to the vendor to obtain a refund.  If the vendor has already remitted the erroneously collected tax to the Commissioner, the vendor may file an amended return upon satisfactory evidence that the vendor has credited or refunded the tax to the purchaser in accordance with the time limitations and other requirements in 830 CMR 62C.26.2, Amended Returns.

(c)  Requirement of Nonbusiness Use by the Purchaser.  To qualify for the sales tax holiday exemption, purchases made on the sales tax holiday must be for nonbusiness use or consumption.  Purchasers paying for tangible personal property or meals with business credit cards or checks must be charged tax on the items or meals purchased.  Vendors are required to maintain normal business records showing the date of sale, item or items purchased, and selling price for business purchases. 

(d)  Returns.  Generally, sales tax may only be refunded to a retail customer on returns within 90 days of the sale.  M.G.L. c. 64H, § 1.  For the 90-day period following the designated days of the sales tax holiday, when a customer returns an item that qualified for the sales tax holiday exemption, the vendor may not credit or refund sales tax to the retail customer unless (1) the customer provides a receipt or invoice that shows the tax was paid or (2) the vendor’s records show that tax was paid.  Vendors may set their own return policies.  This requirement is not intended to change or extend a vendor’s return policy. 

(e)  Record KeepingA vendor must maintain books and records in accordance with M.G.L. c. 62C, § 25, sufficient to substantiate taxable and tax-exempt sales made on the designated days of the sales tax holiday. See 830 CMR 62C.25.1, Record Retention.

(8) Penalties

Vendors that back-date sales occurring after the sales tax holiday or that forward-date sales that occurred before the sales tax holiday in order to make those sales appear to qualify for the sales tax holiday exemption, or otherwise improperly avoid collecting and remitting sales or use tax, may be subject to the tax evasion penalties of M.G.L. c. 62C, § 73.  In addition, the Commissioner may apply the sham transaction doctrine under M.G.L. c. 62C, § 3A when determining whether vendors have properly followed the rules of 830 CMR 64H.1.8.


Proposed Regulation - Public Hearing August 27, 2019
Written comments may be emailed to RulesandRegs@dor.state.ma.us.

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