Directive  Directive 23-1: Use Tax Applied to the Sale of Rolling Stock; De Minimis Standard

Date:	03/23/2023
Referenced Sources:	Massachusetts General Laws

I. Introduction

The retail sale of tangible personal property in Massachusetts is, in general, subject to tax.  M.G.L. c. 64H, § 2.  The Massachusetts use tax complements the Massachusetts sales tax and is imposed on the purchase of tangible personal property for use, storage, or other consumption in Massachusetts. M.G.L. c. 64I, § 2. The sale of so-called “rolling stock,” like the sale of other tangible personal property, is taxable in Massachusetts.  Rolling stock generally consists of trucks, commonly referred to as “tractors,” and the storage trailers that are affixed to the tractors, referred to as “trailers.”[1] Rolling stock purchased or leased in another state is generally subject to the Massachusetts use tax when stored or used in Massachusetts, regardless of whether such rolling stock was registered in such other state.[2]  A taxpayer is allowed a credit against this tax if the taxpayer has paid tax to the other state and that state allows a corresponding credit with respect to Massachusetts sales tax paid on property brought into that other state.  M.G.L. c. 64I, § 7(c).  Further, the Commissioner will recognize a de minimis exception when the use tax would otherwise apply to rolling stock, as further explained below.

II. Issue

In what circumstances will the Commissioner consider the in-state use of rolling stock to be de minimis such that he will not impose, and will not require a taxpayer to pay, use tax with respect to the use or storage of the rolling stock?

III. Directive

Where a taxpayer demonstrates that rolling stock that it owns or leases for 12 months or longer was used or stored in Massachusetts for no more than six days during a 12-month period, the Commissioner will consider the in-state use to be de minimis and will neither impose, nor require the taxpayer to pay, use tax on the use or storage of the rolling stock in Massachusetts for that period.

IV. Discussion

Massachusetts imposes a 6.25% sales tax on all retail sales of tangible personal property in Massachusetts, unless the transaction is otherwise exempt.  M.G.L. c. 64H, § 2.  Under M.G.L. c. 64I, § 2, a complementary use tax is imposed upon the storage, use, or other consumption in the Commonwealth of tangible personal property purchased from a vendor if no Massachusetts sales tax was collected at the time of the sale or lease.  M.G.L. c. 64I, §§ 2, 7(a).  A taxpayer is allowed a credit against any Massachusetts use tax otherwise due if the taxpayer has paid a sales tax legally due to another state and the other state allows a corresponding credit with respect to sales or use tax paid to Massachusetts on property brought into that other state.  M.G.L. c. 64I, § 7(c).  Rolling stock purchased or transferred for use or storage in Massachusetts is generally subject to use tax, irrespective of the state in which the vehicle is registered, purchased or leased, or the percentage of miles travelled, or revenue earned from miles travelled, in Massachusetts as compared to other states.  830 CMR 64H.25.1(3)(c)1.  Rolling stock sold or transferred for delivery in Massachusetts or brought into Massachusetts within six months of its purchase is presumed to have been sold or transferred for storage or use in Massachusetts. M.G.L. c. 64I, § 8(f); 830 CMR 64H.25.1(3)(c)2.  See M & T Charters, Inc. v. Commissioner of Revenue, 404 Mass. 137 (1989).[3]     

In his discretion, the Commissioner is providing a bright-line rule for determining when the in-state use of rolling stock is de minimis.  Where a taxpayer can demonstrate that rolling stock that it owns or leases for 12 months or longer is used or stored in Massachusetts for no more than six days in a 12-month period, the Commissioner will treat the use as de minimis and will not impose, and will not require that the taxpayer pay, use tax on the use of the rolling stock for that period.[4]  Rolling stock operated under a monthly lease does not qualify for the de minimis use exception.  Rolling stock leased on a monthly basis that enters the Commonwealth will be subject to use tax on each monthly transaction, irrespective of the frequency with which the rolling stock was used or stored in Massachusetts during a 12-month period.

A taxpayer can demonstrate the frequency with which rolling stock was used or stored in Massachusetts through sufficient records that show the dates of travel into and in Massachusetts, such as GPS logs. The burden is on the taxpayer to produce adequate records to demonstrate that rolling stock was used or stored in Massachusetts for no more than six days during a 12-month period.  Where a taxpayer does not have or fails to produce such records, the Commissioner will not permit the taxpayer to claim the de minimis use exception, regardless of the frequency with which the rolling stock is used or stored in Massachusetts.  The Commissioner will examine each 12-month period separately. Where the use of rolling stock qualifies for the de minimis use exception in one particular period, the use of the rolling stock may nevertheless be subject to tax in a subsequent period if its use in Massachusetts in that later period exceeds six days.

Example 1: Trucking Company is based in New York and maintains a fleet of rolling stock that it purchased in New Jersey. In calendar year 2021, one of Trucking Company’s tractor trailers travelled through Massachusetts on 3 separate days, and another tractor trailer travelled through Massachusetts on 12 separate days.  The Trucking Company’s tractor trailer that travelled through Massachusetts on 3 separate days qualifies for the de minimis use exception and therefore is not subject to use tax, while the tractor trailer that travelled through Massachusetts on 12 separate days does not qualify for the de minimis use exception and is subject to tax.  

Example 2:  Same facts as example 1, but Trucking Company leases all of its rolling stock on a monthly basis.  Because each monthly lease period is a separate transaction, the use of the tractor trailer that travelled through Massachusetts on 3 separate days does not qualify for the de minimis use exception and use tax applies to the monthly lease payments for those monthly periods in which the rolling stock is used in Massachusetts.

Example 3:  Same facts as example 1, but in calendar year 2022, the tractor trailer that previously qualified for the de minimis use exception in calendar year 2021 is used in Massachusetts for 15 days.  Since the trailer exceeded de minimis use in calendar year 2022, the tractor trailer does not qualify for the de minimis use exception in that year and is subject to tax.

Example 4: Same facts as example 1, but Trucking Company purchases its fleet of rolling stock in a state that imposes sales tax on such rolling stock, and which provides a reciprocal credit for sales and use tax paid to Massachusetts.  Trucking Company paid the sales tax that was legally due on its rolling stock to this state accordingly.  With respect to the tractor trailer that travelled through Massachusetts on 12 separate days in calendar year 2021, no use tax is due to Massachusetts if the amount paid to the other state is equal to or greater than 6.25%.  If the tax imposed by the other state is less than 6.25%, use tax is due on the difference between the amount of Massachusetts use tax that would otherwise be due, and the amount of sales tax previously paid to such other state.

Example 5: Transportation Company is based in Rhode Island and maintains a fleet of rolling stock that it leases from a New Jersey company for a lease term of 36 months.  Transportation Company maintains storage depots in numerous states, including Massachusetts. During a 12-month period, one of Transportation Company’s tractor trailer’s only use in Massachusetts is being driven into the Commonwealth for storage in Transportation Company’s Massachusetts storage depot for four consecutive days, after which it departs the Commonwealth.  The use of the tractor trailer qualifies for the de minimis use exception because it was used and stored for fewer than 6 days in Massachusetts and therefore the tractor trailer is not subject to use tax.

 

                                                                        s/Geoffrey E. Snyder
                                                                        Geoffrey E. Snyder
                                                                        Commissioner of Revenue
GES:RHF:dbb

March 23, 2023

DD 23-1

 

[1] This guidance applies to the unique factual situation presented by the purchase or lease of rolling stock. It does not apply to the purchase or lease of construction equipment, motor vehicles, boats, or other types of equipment.

[2] The imposition of the use tax imposed on rolling stock was upheld against a U.S. constitutional challenge in Regency Transportation Inc. v. Commissioner of Revenue, 473 Mass. 459 (2016).

[3] Rolling stock that is not sold or transferred for delivery in Massachusetts or brought into Massachusetts within six months of its purchase may nonetheless be subject to Massachusetts use tax depending upon the facts and circumstances.  See Brodsky v, Commissioner of Revenue, 2016 Mass. Tax LEXIS 12 (2016).  Cf. Regency Transportation, 473 Mass. 459.

[4] For the purposes of this Directive, a 12-month period refers to a calendar year.  A taxpayer can request the use of an alternate 12-month period, such as one that begins and ends mid-calendar year, i.e., from July 1^st through the following June 30^th.