Technical Information Release  TIR 98-10: Sales and Use Tax Treatment of Transfers of Asphalt and Concrete under Lawrence Lynch Corporation v. Commissioner

Date:	08/28/1998
Organization:	Massachusetts Department of Revenue
Referenced Sources:	Massachusetts General Laws

In "Asphalt Producing" Corporation v. Commissioner, the Appellate Tax Board determined that raw materials and equipment purchased by the taxpayer and used to produce asphalt were exempt from the sales tax. The taxpayer sold some of the asphalt that it produced to certain customers without any accompanying service. The taxpayer used the remainder of the asphalt to pave roads, parking lots, driveways, tennis courts and other similar projects pursuant to contracts that it entered into with its other customers.

The Board ruled that the raw materials that the taxpayer used to produce the asphalt were exempt under G.L. c. 64H, § 6(r), because they became "an ingredient or component part of tangible personal property to be sold. …" Specifically, the Board determined that the raw materials were an ingredient or component part of the asphalt, and that the taxpayer sold all of the asphalt that it produced. In reaching this conclusion, the Board rejected the Commissioner's contention that the asphalt the taxpayer used in the performance of the paving contracts was used by the taxpayer in the performance of construction contracts and, therefore, was not sold. Instead, the Board concluded that the taxpayer had sold and installed the paving materials that it had incorporated into, or affixed to, its customers' real property. The Board appears to have concluded that the taxpayer transferred title to, or possession of, the paving materials to its customers when it installed, affixed or incorporated the paving materials into the customers' real property, and that the transfer occurred at the same time as, or immediately before, such installation, affixation or incorporation.

Likewise, the Board concluded that the equipment used to produce the asphalt was exempt under G.L. c. 64H, § 6(s), because it was used "directly and exclusively … in an industrial plant in the actual manufacture of tangible personal property to be sold." Again, the Board concluded that the taxpayer had sold the paving materials to its customers and then installed, affixed or incorporated the paving materials into the customers' real property.

Finally, the Board ruled in favor of the taxpayer with respect to several factual issues relating to the eligibility of certain specific equipment for the exemption afforded by G.L. c. 64H, § 6(s).

This Technical Information Release (TIR) explains the sales and use tax obligations of taxpayers that produce asphalt and concrete that they then sell to customers either (i) without additional services or (ii) as part of a contract pursuant to which the asphalt or concrete is installed, affixed or otherwise physically incorporated into real property owned by the customers. This TIR does not apply to any other transactions. As used in this TIR, the terms asphalt and concrete include any related paving materials such as sand or stone products that are installed, affixed or otherwise physically incorporated into real property along with the asphalt or concrete. This TIR does not address the portion of the "Asphalt Producing" decision concerning the eligibility of specific equipment for the manufacturing exemption afforded by G.L. c. 64H, § 6(s). Because the application of the exemption under Section 6(s) depends on how the equipment is actually used, the Commissioner must continue to determine the applicability of the exemption in light of the specific facts and circumstances in each case.

I. Producers of Asphalt and Concrete

A. Exemption of Manufacturing Equipment and Raw Materials: In accord with the Lawrence-Lynch decision, the Commissioner will treat asphalt and concrete as tangible personal property that is sold within the meaning of G.L. c 64H, §§ (r) and (s) where the producer of the asphalt or concrete either (i) sells the asphalt or concrete to a customer without any additional services related to installing, affixing or otherwise physically incorporating those materials into real property or (ii) installs, affixes or otherwise physically incorporates the asphalt or concrete into real property, pursuant to any contract or sales agreement with a customer. Thus, raw materials that are used to produce the asphalt or concrete under these circumstances are an ingredient or component part of tangible personal property to be sold. Equipment used to produce the asphalt or concrete under these circumstances is used in the manufacture of tangible personal property to be sold. Therefore, the producer's purchases of such raw materials are eligible for the sales tax exemption under G.L. c. 64H, § 6(r) and the producer's purchases of such equipment are eligible for the exemption under G.L. c. 64, § 6(s), if all of the other requirements for the exemptions are met.

B. Transfers of Asphalt or Concrete: Also in accord with the "Asphalt Producing" decision, the Commissioner will treat taxpayers that produce asphalt or concrete as the vendors of the asphalt and concrete that they either (i) sell to customers without any additional services related to installing, affixing or otherwise physically incorporating those materials into real property or (ii) install, affix or otherwise physically incorporate into real property, pursuant to any contract or sales agreement with a customer. In either case, the sale of the asphalt or concrete takes place at the earlier of (i) the time at which title to the asphalt or concrete passes from the vendor to the customer or (ii) the time at which the vendor transfers possession of the asphalt or concrete by installing, affixing or otherwise physically incorporating it into the real property.

With respect to all such sales that are sales at retail, the vendor may separately state the sales price of the asphalt or concrete on the bill to the customer. (1) Such sales price must reflect the fair retail selling price of the asphalt or concrete. The fair retail selling price must include the vendor's entire cost of producing the asphalt and any markup. The cost of producing the asphalt or concrete includes, but is not limited to, raw materials costs, labor costs, power and fuel costs, transportation expenses (other than separately stated charges for delivery of the asphalt or concrete to the customer after the sale of the concrete or asphalt), overhead expenses, and other production inputs. Unless an exemption applies, the vendor must collect the sales tax on the amount of the separately stated sales price of the asphalt or concrete, but need not collect the sales tax on any separately stated charge for installing, affixing or otherwise physically incorporating the asphalt or concrete into the real property. If the vendor does not state the sales price of the asphalt or concrete on the bill to the customer separately from any service charges for installing, affixing or otherwise physically incorporating the asphalt or concrete into the real property, then, unless an exemption applies, the vendor must collect the sales tax from the customer based on the entire amount that it charges the customer for the asphalt or concrete and the installation, affixation or other physical incorporation of the asphalt or concrete into the real property.

II. Installers of Asphalt or Concrete

A taxpayer that (i) does not produce asphalt or concrete and (ii) purchases asphalt or concrete from another person and (iii) installs, affixes or otherwise physically incorporates the asphalt or concrete into real property pursuant to any contract or sales agreement with a customer is an installer of asphalt or concrete within the meaning of this TIR. In accord with the "Asphalt Producing" decision, installers of asphalt or concrete are vendors of tangible personal property. The installer may separately state the sales price of the asphalt or concrete on its bill to the customer. (2) The sales price must reflect the fair retail selling price of the asphalt or concrete, including the entire amount that the installer paid its supplier for the asphalt or concrete and any markup that it charges the customer for those materials. Unless an exemption applies, the installer must collect the sales tax on the amount of the separately stated sales price of the asphalt or concrete, but need not collect the sales tax on any separately stated charge for installing, affixing or physically incorporating the asphalt or concrete into the real property. If the vendor does not state the sales price of the asphalt or concrete on the bill to the customer separately from any service charges for installing, affixing or otherwise physically incorporating the asphalt or concrete into the real property, then, unless an exemption applies, the vendor must collect the sales tax from the customer based on the entire amount that it charges the customer for the asphalt or concrete and the installation, affixation or other physical incorporation of the asphalt or concrete into the real property. The installer may present a resale certificate when purchasing the asphalt or concrete from its supplier. An installer must be registered as a vendor to use a resale certificate.

III. Effective Date

This TIR applies prospectively to transactions on or after the date sixty days after the issuance of this TIR. The Commissioner will not assess sales or use tax with respect to any completed sale, installation or other transfer of asphalt or concrete occurring before that date so long as the following conditions are met:

A. In contracts where the asphalt or concrete was transferred with installation services, the vendor, installer or other transferor either (i) collected the sales or use tax from its customer based on the sales price of the asphalt or concrete and paid such tax over to the Commissioner, or accepted a valid exemption certificate, or (ii) paid the sales or use tax on its purchases of materials used to complete the contract, or presented a valid exemption certificate; and
B. In contracts where the asphalt or concrete was transferred without any installation services, the vendor either (i) collected the sales tax or use tax from its customer based on the sales price of the asphalt or concrete and paid such tax over to the Commissioner or (ii) accepted a valid exemption certificate.

 

/s/Mitchell Adams
Mitchell Adams
Commissioner of Revenue

August 28, 1998

TIR 98-10

1. The sales price of related paving materials such as sand or stone products may be included in the sales price of the asphalt or concrete or may be stated separately. In either case, the transfer of related paving materials is subject to the sales or use tax in the manner described in this TIR. ( return to text)

2. The sales price of related paving materials such as sand or stone products may be included in the sales price of the asphalt or concrete or may be stated separately. In either case, the transfer of related paving materials is subject to the sales or use tax in the manner described in this TIR.( return to text)