|Organization:||Massachusetts Department of Revenue|
|Referenced Sources:||Massachusetts General Laws|
Sales and Use Tax
A recently enacted statute provides for a Massachusetts "sales tax holiday," i.e., a single day during which most purchases made by individuals for personal use will not be subject to Massachusetts sales or use taxes. St. 2003, c. 141, §§ 55-59 ("the Act"). The Act provides that the sales tax holiday will occur on August 14, 2004 and on that day, all non-business sales at retail of single items of tangible personal property costing $2,500 or less are exempt from sales and use taxes. However, under that Act all sales of motor vehicles, boats, meals, telecommunications services, gas, steam, electricity, 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. The Act charges the Commissioner of Revenue with issuing instructions or forms and rules and regulations necessary to carry out the purposes of the Act.
II. Purchases Qualifying for the Exemption
The exemption applies to sales of tangible personal property bought for personal use only. Purchases by corporations or other businesses and purchases by individuals for business use remain taxable. Purchases exempt from the sales tax under G. L. c. 64H are also exempt from use tax under G.L. c. 64I. Therefore, eligible items of tangible personal property purchased on the Massachusetts sales tax holiday from out-of-state retailers for use in Massachusetts are exempt from the Massachusetts use tax.
III. Specific Rules
The following rules are to be applied by retailers in administering the Massachusetts sales tax holiday exemption:
- Non-Exempt Sales - All sales of motor vehicles,  boats,  meals,  telecommunications services,  gas,  steam, electricity, 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. Id.
- Threshold -- When the sales price of any single item is greater than $2,500, sales or use 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.
Exception - Under 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 threshold amount is not increased by $175.
Example - A customer buys a suit for $2,550. Tax is due on $2,375 ($2,550 - $175).
- Bundled Transactions - When several items are offered for sale at a single price, the entire package is exempt if the sale price of the package is $2,500 or less. For example, 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) is more than the sales tax holiday threshold amount of $2,500.
Items that are priced separately and are to be sold as separate articles will qualify for the sales tax holiday exemption if the price of each article is $2,500 or less. For example, 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 exemption because the sales price ($3,000) is in excess of the sales tax holiday threshold amount of $2,500. However, since the sales price of the computer printer ($200) is less than $2,500, the printer would be exempt from tax.
- Coupons and Discounts - If a store coupon or discount provided by a retailer or manufacturer reduces the sales price of the property, the discounted sales price determines whether the sales price is within the sales tax holiday price threshold of $2,500 or less. 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 seller 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 $140 is due on the purchase of the sofa, $2,800 ($3,500 - $700), as even its discounted price exceeds the $2,500 threshold.
- Exchanges - Consistent with the Department's usual practice, if a customer purchases an item of eligible property during 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 sales tax holiday, see LR 03-8.
- 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. Under Massachusetts law, a sale only occurs on transfer of title or possession, or both. In a layaway sale, neither title nor possession can pass until the buyer has made all of the required payments. Since title or possession must pass on the sales tax holiday to qualify for the exemption, the last required payment must be made on August 14, 2004.
If the customer has been charged tax on each payment, any tax paid should be credited or returned to the customer when the final payment for merchandise is made. If the vendor has already paid over tax previously collected, the vendor may seek an abatement within 3 years of filing the return for such tax. The vendor must produce satisfactory evidence showing that the vendor has credited or refunded the tax to the purchaser.
Example --- A customer purchases a computer for $2,300. With tax, the total purchase price would be $2,415. The customer agrees to pay for the merchandise in 10 installments of $ 241.50, each of which includes $11.50 in tax. Prior to the sales tax holiday, the customer has paid 9 installments totaling $2,173.50, which includes $103.50 in tax. When the customer pays the final installment on the sales tax holiday, the amount charged is $126.50. ($241.50 - $103.50 - $11.50)(installment due - tax paid - tax included in final installment).
- 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 exemption regardless of when the rain check was issued if the rain check is used on the sales tax holiday. Issuance of a rain check during the sales tax holiday will not qualify otherwise eligible property for the sales tax holiday exemption if the property is actually purchased after the sales tax holiday.
- Order Date and Back Orders - For purposes of the sales tax holiday, property qualifies for the exemption if the customer orders and pays for the item during the sales tax holiday, even if delivery is made thereafter.
- 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 is within the sales tax holiday price threshold of $2,500 or less.
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 is within the sales tax holiday price threshold of $2,500 or less, and tax must be charged on the full purchase price.
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 retailer 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.
- 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 August 14, 2004, Eastern Daylight Time. A customer pays for an item when the seller receives a credit card number, a debit authorization, a check, or a money order. The actual delivery can occur after the holiday period. For 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 August 14, 2004; the computer has a delivery date of September 1, 2004. The sale is exempt since the computer was ordered and paid for during the sales tax holiday.
- Splitting of Items Normally Sold Together - Articles normally sold as a single unit must continue to be sold in that manner. Such articles cannot be priced separately and sold as individual items in order to obtain the sales tax holiday exemption.
- Returns - For a 90-day period immediately after the sales tax holiday, when a customer returns an item that would qualify for the sales tax holiday exemption, no credit for or refund of sales tax will be given unless the customer provides a receipt or invoice that shows tax was paid, or the seller has sufficient documentation to show that tax was mistakenly charged on the specific item. The 90-day period is for record keeping purposes only; it is not intended to change a seller's policy on the time period during which the seller will accept returns.
- Erroneously Collected Taxes - Customers who were erroneously charged sales tax by a vendor for an exempt purchase should take their tax paid receipt to the vendor to obtain the refund. If the vendor has previously remitted the erroneously collected tax to the Department, the vendor may file an application for abatement of the erroneously collected tax within 3 year upon satisfactory evidence that the vendor has credited or refunded the tax to the purchaser.
IV. Responsibilities of Retailers
- Participation - All Massachusetts businesses normally making taxable sales of tangible personal property that are open on August 14, 2004 must participate in this sales tax holiday.
- Erroneous Collection - any sales or use tax erroneously or improperly collected by a retailer on August 14, 2004 must be remitted to the Department of Revenue.
- Certification of Nonbusiness Use by Purchaser - Normal business records showing the date of sale, item(s) purchased and selling price must be kept by the retailer/vendor. However, when a retailer sells an item(s) exempt by virtue of the sales tax holiday, and the total transaction is $1,000 or more, a retailer must also document the transaction by obtaining and keeping a Massachusetts Sales Tax Holiday Purchaser's Certification of Nonbusiness Use, signed by the purchaser of the exempt item(s). On-line or telephone retailers should similarly allow a purchaser to make a selection to confirm that the item(s) being purchased are for personal use rather than for business use. Retailers should keep this Certification for three years. The Certification is intended to protect retailers from any question as to whether the purchaser was actually buying the items for business use, subject to the retailer's good faith acceptance of the certification as explained below. Retailers may use the Massachusetts Sales Tax Holiday Purchaser's Certification of Nonbusiness Use, which is available on the Department's website, at http://www.dor.state.ma.us/forms/wage_rpt/pdfs/st_hol.pdf, or retailers may provide their own, which must include the following information: a statement by the purchaser affirming that the purchases are for personal use rather than for business use, the purchaser's address, the purchaser's signature or comparable confirmation for online or telephone transactions, and the purchaser's telephone number. The following is model language for the Certification:
"I, _____ ____________________, certify that the item(s)
listed on the attached receipt are being purchased for
personal use and not for any business use."
Purchaser's Signature Purchaser's Telephone Number
Example -- A customer buys twenty-five items, each costing $40. Since the transaction totals $1,000, the retailer must document the transaction by obtaining and keeping a Massachusetts Sales Tax Holiday Purchaser's Certification of Nonbusiness Use, signed by the purchaser of the items.
- Acceptance of the Certification - It is presumed that all gross receipts of a vendor from the sale of services or tangible personal property are from sales subject to tax. G.L. c. 64H, § 8; G.L. c. 64I, § 8. The burden of proving that a particular sale made on the sales tax holiday is not a taxable sale is on the vendor. Acceptance of a Purchaser's Certification will relieve the vendor from the burden of proof only if taken in good faith from the person purchasing the property. A vendor would not be deemed to have accepted such a certification in good faith if the purchaser uses a business name or d/b/a/, or if other circumstances make it clear that the purchase is not for personal use. Purchasers paying for tangible personal property with business credit cards or checks must be charged tax on the items purchased.
- Out-of-State Retailers - Out-of-state retailers registered to collect Massachusetts sales and use taxes must participate in this sales tax holiday. Such retailers should not collect sales/use tax for items ordered and paid for on August 14, in accordance with the rules of this technical information release. The retailers must keep records sufficient to verify the date of sale, item(s) purchased, and selling price. In addition, out-of-state retailers must document sales by obtaining and keeping Purchaser's Certifications (see above).
/s/ Alan LeBovidge
Commissioner of Revenue
May 25, 2004