| Date: | 01/14/1999 |
|---|---|
| Organization: | Massachusetts Department of Revenue |
| Referenced Sources: | Massachusetts General Laws |
Sales and Use Tax
I. Introduction: This Technical Information Release (TIR) is being issued to explain the effect of recently enacted legislation on Massachusetts' taxation of Internet access charges, electronic commerce, and telecommunications services.
II. Massachusetts Legislation:
A. Background: In 1997, the Massachusetts legislature enacted a retroactive change to the definition of taxable telecommunications services contained in G.L. c. 64H, § 1. See St. 1997, c. 88, §§ 23, 102, 114 (Supplemental Budget Act of 1997, "The Act"). The Act excludes the following (in addition to cable television) from the definition of taxable telecommunications services: "internet access services, electronic mail services, electronic bulletin board services, web hosting services or similar on-line computer services."
Massachusetts has imposed a sales and use tax on telecommunications services since September 1, 1990. Prior to the recent statutory amendment, taxable telecommunications services included "any transmission of messages or information by electronic or similar means, between or among points by wire, cable, fiberoptics, laser, microwave, radio, satellite or similar facilities but not including cable television." G.L. c. 64H, § 1.
The exclusion contained in the Massachusetts statute is retroactive to September 1, 1990; the terms of the legislation state that the exclusion expires on July 1, 1999.
B. Abatements: A vendor that has collected and remitted a tax on the services now excluded from the definition of taxable telecommunications may apply to the Department for an abatement using Form CA-6. No abatements can be granted unless the vendor establishes to the satisfaction of the Commissioner that it has repaid or credited the previously collected tax to its customers. See G.L. c. 62C, § 37, and 830 CMR 62C.37.1(5).
Generally, only vendors (the taxpayers of record) may submit abatement applications concerning tax on Internet access and similar on-line services. Individual retail customers interested in refund or credit of Massachusetts sales or use tax charged in the past on services retroactively made non-taxable should contact their Internet or on-line service provider.
Abatement applications concerning tax on Internet access and similar on-line services are not subject to the time limitations contained in G.L. c. 62C, § 37, or the Abatement Regulation, 830 CMR 62C.37.1(2). Therefore, abatement applications for tax paid on or after September 1, 1990 will be considered, providing the taxpayer has adequate records and otherwise meets the requirements of 830 CMR 62C.37.1(4).
III. Federal Legislation: The Omnibus Appropriations Act of 1998 (H.R. 4328, Laws 1998) was passed by Congress and signed into law on October 21, 1998. Another pending bill, referred to as the Internet Tax Freedom Act ("The Federal Act"), was incorporated into the budget package and enacted at the same time. The Federal Act bars states and their political subdivisions from imposing taxes on Internet access charges, unless such tax was generally imposed and actually enforced prior to October 1, 1998, and bars multiple or discriminatory taxes on electronic commerce.
The term "Internet access" is defined in the Federal Act as "a service that enables users to access content, information, electronic mail, or other services offered over the Internet, and may also include proprietary content, information, and other services as part of a package of services offered to consumers. Such term does not include telecommunications services."
The Federal Act defines "electronic commerce" as including transactions conducted via the Internet that comprise the sale, lease, license, offer, or delivery of property, goods, services, or information, whether or not for consideration, and including provision of Internet access.
A "discriminatory tax" tax is defined in the Federal Act as a tax on electronic commerce which is not also "generally imposed and legally collectible" on similar products, services and goods sold by other means. The term also includes a tax on electronic commerce at a different rate than other commerce or imposes the duty to collect the tax on a different person. In addition, a tax will be considered discriminatory if it considers the ability to access a site on a remote seller's out-of-state computer server as a factor in determining nexus. Also, a tax will be considered discriminatory if it deems an Internet access provider to be the agent of an out-of-state vendor solely as a result of the service provider hosting the vendor's webpage and/or processing orders on behalf of the out-of-state vendor.
IV. Discussion: The Federal Act prohibits Massachusetts from taxing Internet access, as defined in the federal statute, for three years from October 21, 1998. Generally, it also prohibits Massachusetts from asserting sales or use tax jurisdiction over Internet vendors of tangible personal property that have no physical presence in Massachusetts within the meaning established by the U.S. Supreme Court in Quill Corporation v. North Dakota. Both the Federal Act and the Massachusetts legislation provide for these issues to be studied further by specially appointed commissions prior to the expiration of the three year moratorium created by the Federal Act.
Existing sales and use taxes on telecommunications services are not affected by either the Massachusetts or Federal Act. Examples of taxable telecommunications services and non-taxable services appear in the following section.
V. Examples of Taxable Telecommunications and Non-Taxable and Exempt Services:
A. Taxable telecommunications services include, but are not limited to, the following:
1. Telephone services (both voice and non-voice).
2. Per minute or other separately stated charges for long distance telephone calls, whether or not the call is routed through the Internet.
3. Telegraph services.
4. Beeper, paging, and similar services.
5. Voice mail services.
6. Facsimile transmission services. See 830 CMR 64H.1.6(6).
7. Teleconferencing services.
8. Auxiliary services such as call-forwarding and call-waiting services.
9. Cellular telephone service including roaming charges.
10. Charges for the right to use any telecommunications service, whether or not the purchaser ultimately uses the service in a particular billing period. Such charges include, but are not limited to, fees structured as recurring monthly charges for telephone service, set-up or activation charges, access charges, and membership fees.
B. Non-taxable and exempt services include, but are not limited to, the following:
1. Internet access services, electronic mail services, electronic bulletin board services (including interactive services such as "chat rooms") or web hosting services transmitted or accessed through an Internet Service Provider. [1]
2. Charges for access to or use of private telecommunications networks which are linked with the Internet or provide enhanced telecommunications services [2] (e.g., charges for automated teller machine (ATM) terminal driving services, electronic funds transfer services, or credit card or check verification services).
3. Database or similar electronic information services available to multiple subscribers (e.g., services providing access to current stock market quotes, crop prices, or legal opinions and statutes.)
4. Data processing services. See 830 CMR 64H.1.3 (9).
5. An exemption of $30 per month is applicable to certain residential telephone services. G.L. c. 64H, § 6(i). Only one $30 exemption may be claimed per month by a residential customer at a service address. The telecommunications vendor shall prorate the exemption where an initial or final billing for services eligible for the residential exemption covers a period of more or less than one month. See also 830 CMR 64H.1.6(5).
6. Cable television service. Charges for the transmission of video programming to retail customers through a community antenna television system regulated under Chapter 166A of the General Laws or charges for substantially similar services, including retail sales of direct broadcast television, are not telecommunications services subject to tax. Provision of telephone, messaging, or other non-programming services over cables or other facilities that also carry cable television programming is not "cable television" for purposes of Chapters 64H, § 1, and 64I, § 1.
7. Public broadcasts of radio or television programming. See 830 CMR 64H.1.6(2).
8. Alarm monitoring services.
9. Sales or uses of telecommunications services which are otherwise exempt, e.g., sales to government agencies or charitable organizations. See G.L. c. 64H, § 6, and 64I, § 7.
VI. Application of Resale Rules to Telecommunications Services:
A. Telecommunications services purchased by a telecommunications vendor in connection with the provision of services subject to tax under G.L. c. 64H, § 1, or G.L. c. 64I, § 1, are sales for resale and therefore are not subject to tax. See 830 CMR 64H.1.6(6) and TIR 91-1.
B. Telecommunications services purchased by an Internet or on-line service provider, a database service or similar information vendor, or a private telecommunications network described in section V. B. 2., supra, and consumed in the provision of services which are not subject to tax under G.L. c. 64H, § 1, or G.L. c. 64I, § 1, are not purchased for resale and are taxable when they are sold in or purchased for use in Massachusetts. This rule applies whether or not such a vendor separately states telecommunications charges to its customer.
/s/Bernard F. Crowley, Jr.
Bernard F. Crowley, Jr.,
Acting Commissioner of Revenue
BFC:DMS:tl
January 14, 1999
TIR 99-2