Tax Article - Massachusetts DOR Policy Change Regarding Sales Tax on Transportation Charges

Effective September 1, 2004, the Commissioner will not assess sales tax on separately stated transportation charges provided that the following requirements are met: 

(1) the charge reflects a cost of preparing and moving the goods to a location designated by a retail customer; 
(2) the charge is separately stated on the invoice to the customer (not merely on the internal books and records of the vendor) and 
(3) the charge is set in good faith and reasonably reflects the actual costs incurred by the vendor. 

Transportation Charge is a charge by the seller of tangible personal property for preparation and delivery of goods to a location designated by the purchaser is excluded from the sales price subject to tax. Charges for transporting property to the vendor as "freight-in" charges are not "transportation charges" within the meaning of this Directive. Freight-in charges are part of the vendor's overhead and are included in the sales price subject to tax.

Examples
(1) A customer enters a Massachusetts retail store, purchases taxable goods with a credit card and directs the vendor to deliver the merchandise to his home in Massachusetts. Regardless of any written agreement or other evidence concerning passage of title, the transportation charges are not subject to tax.

(2) Same facts as in Example 1, except the customer directs the vendor to deliver the merchandise to a location in New Hampshire. Neither the sales price of the merchandise nor the transportation charges are taxable.

(3) A customer enters a Maine retail store with branches in Massachusetts, purchases taxable goods with a credit card, and directs the vendor to deliver the goods to her home in Massachusetts. The Maine retailer must collect Massachusetts sales tax on the goods. The Commissioner will treat the transportation charges as nontaxable.

(4) A national discount retail store with locations in 20 states sells a washing machine to a Massachusetts customer from its Massachusetts store. The customer directs the retail store to deliver the washing machine to his home. The retail store has the machine delivered directly to the taxpayer's residence from a warehouse located in New York. The retail store must collect sales tax on the retail price of the washing machine. The transportation charges are not taxable.

(5) A New York furniture dealer not registered as a Massachusetts vendor and without Massachusetts nexus sells a dining room set to a Massachusetts resident. The dealer purchases the furniture from a manufacturer in North Carolina that has nexus with Massachusetts and has it shipped directly to the Massachusetts resident. The North Carolina manufacturer must collect Massachusetts sales tax on its sale to the New York furniture dealer based on the retail sales price of the furniture. The transportation charges are not taxable.

(6) An auto manufacturer imposes a delivery charge for transporting a new automobile to a Massachusetts auto dealer. The dealer passes this charge on to its customer as a separately stated charge on the invoice. This delivery charge is not excluded from the sales price subject to tax even if separately stated on the dealer's invoice to its customer because it does not reflect the dealer's cost of transporting the automobile to its ultimate customer. Rather, it is considered to be part of the vendor's costs that may not be excluded from the taxable sales price. 

If you have any questions, please contact Feeley & Driscoll's Boston CPA team, Email us or call 1 (888) 875-9770.

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