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The Massachusetts Appellate Tax Board determined that a defense contractor’s purchases of indirect cost items connected to its performance of government contracts did not qualify for the resale sales tax exemption. The contractor contended that the items, which included food and catering services, janitorial supplies, cell phones, and office furnishings, should qualify because pursuant to Federal Acquisition Regulations, the cost of and title to these items vested to the federal government immediately after purchase by the contractor. However, these items were not delivered to the government as final products, and the Board found them to be merely incidental to the government contacts and served only to facilitate their completion. (Raytheon Company v. Commissioner of Revenue, Massachusetts Appellate Tax Board, No. C277684, July 17, 2008)


Legislation has been proposed that would lead the Massachusetts Department of Revenue to prepare a brief study and draft legislation concerning the possibility of compliance with the Streamlined Sales and Use Tax Agreement. They have until December 1, 2009 to provide a report and recommendations pertaining to this matter. (S.B. 1757, as introduced January 10, 2007)


Directive 06-7, recently issued by the Massachusetts Department of Revenue, explains how room occupancy excise taxes apply to both complimentary and discounted hotel rooms. The room occupancy tax must be collected if all of the following are present: 1) the place in which the complimentary or discounted room is a hotel; 2) there is a transfer of occupancy; and 3) there is consideration for the transfer valued at $15 or more. The tax is computed on the amount actually paid for the room if the hotel receives no benefit beyond the actual rent paid. If the hotel does receive a benefit (direct or indirect) beyond the actual rent paid, the tax is based on the fair market value of the room. (Directive 06-7, Massachusetts Department of Revenue, December 12, 2006)


As a result of a recent court decision, the Massachusetts Department of Revenue has revisited their position on the taxation of room rentals. Previously, if the term of a room rental exceeded 90 days, the first 90 days were subject to tax. The court found that room rentals that exceeded 90 days did not qualify as “occupancy” under existing tax law and should not be subject to tax. Going forward, if there is evidence in writing that the rental will exceed 90 days, no tax is due on the agreement. If the agreement is terminated before the 90 day period, tax is due retroactively. If there is no agreement on length, tax must be collected. Taxpayers who previously collected and remitted this tax may file an application for abatement. (Technical Information Release 07-2, Massachusetts Department of Revenue, January 26, 2007)


The Massachusetts Appellate Tax Board recently found that a charge which provided both a service (photocopying and mail processing) as well as a transfer of tangible personal property (photocopies) was subject to state sales tax as the basic purpose of the charge was to acquire the photocopies and not necessarily the services that were involved. Even though the property transferred accounted for only 5-10% of the total charge, the property was ruled not to be “inconsequential” as the customer was contracting for the property. (Pitney Bowes Management Services, Inc. v. Commissioner of Revenue, Massachusetts Appellate Tax Board, No. C273188, Nov 2, 2006)



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