KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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Is monitoring taxable in Massachusetts
June 16, 2023
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Is monitoring taxable in Massachusetts
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Ken,
Could you confirm if monitoring service in Massachusetts is taxable? We currently do not charge a sales tax for monitoring service.
Jason
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Response
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Clint Eastwood’s Dirty Harry said “a man’s got to know his limitations”. I do, somewhat, so I don’t give tax advice. Fortunate for me, and all of you in the alarm industry, we have the best resource available [and on this forum, the best price], Mitch Reitman. So I asked him and his response follows: [but the way, next time you’re wondering if sales tax or about any tax, I suggest you contact Mitch before you begin operations, not once you are into it up to your neck]
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Mitch Reitman’s response:
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Ken,
The answer is that alarm monitoring is not taxable in Massachusetts. This was not an easy question to solve but we deal with these issues every day. The problem is that the State Tax Codes are somewhat vague and monitoring is a unique service. Some states charge telecommunications, some tax data transfer, some tax telephone service. While monitoring could be all or none of these services, it is important to look not only at the statutory law, but also at the case law, or interpretation. As the taxing authorities encounter situations with taxpayers' (and auditors') understanding of the law and the definition of services, they will issue clarifications and interpretations as was done here. When we are presented with a question about the taxability of a service, such as monitoring, we first look at the Tax Code, and, if the Code isn't clear, we then search for interpretations. In this case, is that both of the "clarifications" didn’t address alarm monitoring. There are hundreds of Alarm companies in each state and, eventually, one will contest an audit or ask for a Technical Ruling. We represent alarm companies in audits, and, we often ask for Technical Rulings when our client has a question and the answer from the State isn’t clear. In this case we searched for court cases (such as Administrative Appeals of audits) and found none. We then searched the database of Technical Rulings by the State of Massachusetts and found that they had ruled that alarm monitoring is exempt from sales and use tax.
Alarm company owners should keep in mind that the above isn’t a "Google Search." These databases are hard to navigate and you cant rely on anything other than authoritative Code, decisions, and rulings by the particular State. Anyone can post anything on a website. "Informative Pamphlets," even if they are produced by the States can be modified or rescinded. The results of someone else's audit don’t matter. Keep in mind that some of the case law and technical rulings come about because the actual taxing authority didn't know how to interpret the ruling.
The following is a summary of our research that explains how we arrived at, and document, our decision that monitoring is exempt from taxation in Massachusetts. If your tax professional has done anything less, you could be headed for trouble.
Mitch Reitman
817 698 9999 XT 101
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It is not clear from the statutes. Massachusetts imposed a sales and use tax on telecommunications services in September 1, 1990. 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 State Tax Code doesn’t clearly define what “Telecommunications Services” are.
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.”
This still didn’t address alarm monitoring so, in 1999, Massachusetts issued a Technical Information Release (#99-2) that did address alarm monitoring and defined it as a non-taxable service. Our firm does a lot of State Tax research and were able to locate the Release for a definitive answer. Since the Release does address alarm monitoring services, and specifically exempts them, from sales and use tax, a company can rely on the Release to defend a position that monitoring services are not taxable. Although Technical Information Releases are not statutory law, they are used to interpret and clarify the law. When you are dealing with something as important as the taxability of the services that you are providing it is critical to get the best information possible.
The following is from Technical Information Release 99-2, Massachusetts Department of Revenue, January 14 1999.
V. Examples of Taxable Telecommunications and Non-Taxable and Exempt Services:
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 nonprogramming 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.
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
www.KirschenbaumEsq.com
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