Governor Deval Patrick's Budget Recommendation - House 2 Fiscal Year 2015

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Sales and Use Tax Description

Massachusetts imposes a sales and use tax on retail sales.  In addition to the sales and use tax, there are several separate excises, each limited to a particular type of commodity.  These special excises have not been included in this tax expenditure budget.

The Massachusetts sales and use tax, first imposed in 1966, was levied at a rate of 5%. Effective on and after August 1, 2009, the rate was changed from 5% to 6.25%. The sales tax applies to sales made within the state, and the use tax to property and services purchased outside of Massachusetts but intended for use within the state.

Revenue from the sales and use tax represented 23.5% of total Department of Revenue tax collections for Fiscal Year 2013, and was the second largest source of tax revenue after the income tax.

Sales and Use Tax: Basic Structure

Tax Base: For the purposes of this tax expenditure budget, we have chosen not to make any assumptions about the base of the Massachusetts sales and use tax. Some people take a narrow view of what a retail sale is, limiting the term to sales to final consumers, i.e., individuals.  Others would include sales to businesses, especially in instances where the purchase will not become an ingredient or component in a product to be sold.  In an effort to acknowledge both theories, we will simply list the various exemptions under the sales tax.  Some or many of these exemptions could be considered to be properly excluded from the tax base depending upon one's point of view.

Taxable Unit: The sales and use tax is levied on the property or service to be sold or used.

Rate Structure: The sales and use tax rate is 6.25% of the price.

Taxable Period: Except for sales of motor vehicles, in which the tax is imposed and paid by the purchaser to the Registry of Motor Vehicles, the tax is imposed at the time of sale and remitted at specified intervals by the vendor.  The use tax is paid directly to the Department of Revenue by the user of the item, and may be paid annually or more often (typically monthly). 

Interstate and International Aspects: Massachusetts applies the destination principle to international and interstate sales.  Accordingly, exports are exempt and imports are taxable under the sales and use tax.  Statutory exemptions for exports of property and for services used outside of the Commonwealth are therefore not listed as tax expenditures.

Title: Computation of Massachusetts Sales and Use Tax by Vendor - Description: Gross Receipts from Taxable Sales.  Apply 6.25% Tax.  Results in Sales Tax.
A purchaser is also responsible for paying use tax directly to the Commonwealth on the sales price of taxable property or services purchased out-of-state and stored, used, or otherwise consumed in the Commonwealth, provided that a sales and use tax of 6.25% or more has not been paid separately to another state.

Types of Tax Expenditures under the Sales Tax

In the case of the sales tax, all tax expenditures are of a single type.  They all result from the exclusion of certain transactions from the taxable base.  The exclusion can be based on any of a number of characteristics of the transaction - who the buyer is, who the seller is, what the product or service is, what the product or service will be used for, etc. - but structurally all such tax expenditures operate in the same way.  Hence, we have omitted the designation of tax expenditure types from the descriptions in this section.

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