AOH :: MASSMODM.TXT|
Mass. DOR Attempts Modem Tax
New Massachusetts Modem Tax Proposed (For Real)
Channel 1 BBS in Cambridge is having the unpleasant experience
of being targeted for an "experiment" in revenue collection by the
Massachusetts Department of Revenue.
The DOR threatened Channel 1 with a bill for back taxes plus
usurous interest and penalties on fees paid for information access
and retrieval. While telecommunications transmission services
(such as telephone, satellite, etc) have been taxed by state
statute since September 1990, information access and message
services are explicitly excluded in the state tax code (see refs).
This is the first time that the state has ever tried to collect a
tax on online information access in Massachusetts (the
"transmission" is taxed in your phone bill).
After considerable negotiation and $20,000 worth of legal and
accounting assistance, the DOR has put Channel 1's case on shelf
until the end of the year. However, it has become clear that the
DOR is continuing to advance their justification for an information
tax through several tactics, including "creative" interpretation
and a legislative re-write of the telecommunications sections of the
Under the revision to either the code or its interpretation, all
charges for online access and data retrieval would be subject to 5%
Massachusetts sales tax. Consumers of online services, database
access, email, legal and scientific or commerical research data,
pay bbs's, and Internet access services would be among those affected.
It is possible that feedback from those concerned might influence
policy decisions apparently scheduled for completion by the end of
1993. The "proposed new regulations" are being revised now. The
public (and the legislature) will never be less-informed about the
tax and its implications. Unless consumers speak up now, new taxes
will just get buried in new telecomm code revisions.
A little effort now may save you alot of money later.
Call, write or FAX these numbers, make your feelings
and opinions known, and pass this information on.
NO TAX ON INFORMATION!
Suite 360 The State House
Boston, MA 02133 Telephone: 727-9133 Fax: 523-7984
Mitchell Adams Commissioner of Revenue
100 Cambridge Street Room 706 N
Boston, MA 02204 Telephone: 727-2640 Fax: 727-4241
Edward J Markey
2133 Rayburn House Office Building
Washington, DC 20515 Tel: 202 225-2836 Fax: 202 225-1716
135 Morrissey Boulevard
Boston MA 02125 Tel: 617-929-2000 Email: email@example.com
For more information:
617-354-0100 info 617-354-5776 modem
J MASSMODEMTAX at the menu (free access conference).
Massachusetts General Law References
Massachusetts Sales and Use Tax Regulation
Chapter 64H section 1 (Definitions)
"Telecommunications services," any TRANSMISSION of messages or
information by electronic or similar means, between or among points by
wire, cable, fiberoptics, laser, microwave, radio or similar facilites
but not including cable television."
Chapter 64H section 1.3 Computer Industry Services and Products (12)
Transmission of Programming or Reports. Charges for transmitting
computer software or reports of anytype by telephone lines, microwaves,
or other electronic modes of transmission are not taxable, unless the
vendor transfers an otherwise taxable storage medium imprinted with the
programs or reports as part of the same transaction. (13) Access to
Database Services (a) Exemption for database services. Charges for
access by telephone or other means to databases stored in computer
equipment not on the premises of the customer are generally not taxable.
Related Letter Ruling 81-41 - Chapter 64 Section 1 (13)(c) provides that
"sales" subject to tax do not include professional or personal service
transactions which involve no sale or which involve sales as
inconsequential elements for which no separate charges are made. Based
on the foregoing .... charges to information providers for the right to
place information in the (Brand X) computer will not be subject to
Massachusetts sales or use taxes.
Related Letter Ruling 85-61 - "You request a ruling regarding the
application of the Massachusetts sales tax to monthly access charges for
the use of ______ ("System"). "Transaction whereby a person secures
access, by means of telephon or other lines, to equipment not on his
premises, is not subject to tax if the person or his employees do not
operate the equipment or direct or control it's operation while on the
premises where the equipment is located."
[Everything following is the 1990 revisions]
Chapter 64H.1.6: Telecommunications Services...applies to sales of
telecommunications services on or after September 1, 1990. Section (2) -
Telecommunications services, any TRANSMISSION of messages or information
by electronic or similar means, between or among points by wire, cable,
fiber-optics, laser, microwave, radio, sattellite, or similar facilities
but not including cable television. (ADDING the following) In general,
telecommunications include telephone and other transmissions between or
among specific parties or specific location, but do not include public
Section (5) Residential Telephone Service Exemption and services not
eligible for Residential exemption.
Section (6) Deals with Sales for Resale of Telecommunications Services
Section (7) Services Sold in Conjunction with Telecommunications
Services. (b) The tax on the sale or use of telecommunications services
under MGL c64H. 64I. is a tax on the "TRANSMISSION" of messages or
information by various electronic or similar means. Generally, it is
not a tax on the sale or use of information itself. In some
transactions, such as telephone calls to "900 numbers" or to certain
database services that are not otherwise excluded from the definition of
a taxable sale under MGL c64H s.1(12)(f), a purchaser may purchase a
telecommunication service (i.e. the telephone call or other
transmission) and the information or data being transmitted
simultaneously. Under such circumstances, the entire sales price of the
transaction is taxable as the sale or use of telecommunications
services, unless the sales price of the taxable tranmission and the
sales price of information or data transmitted, are separately stated on
any evidence of the sale issued or used by the vendor...If the two
amounts are separately stated, the tax is assessed only on the sales
price of the taxable transmission service.
Message services excepting only beeper services which are to be taxed
under the telecommunications transmission tax - were officially
"re-exempted" under SIC 7389 (when the broader based sales tax was
rejected by the DOR in March 1991 - ed.) .
END of LEGALESE
No BBS (defined here as online service that does NOT resell telephone
services) in Massachusetts collects the telecommunications tax from its
customers for obvious reasons. ONE Massachusetts BBS was audited in
early 1991 (after the telecommunications tax went into effect) and was
NOT assessed or told to assess sales tax on its access fees.
Most (but not all) online services in Massachusetts that DO PROVIDE
telephone services do NOT collect or pay the sales tax -- Compuserve
(which has several offices in the state as well as many telephone
installations) and Prodigy for example, also UUNET and PSI. Though
there are some telephone services PROVIDERs (Mead Data, Westlaw) which
do collect the tax on the telephone portion of their services.
July 26 1993
Channel 1(R) BBS
A sample letter on this subject follows:
Date: 07-25-93 (19:38) Number: 4305 of 4305 (Refer# NONE)
From: FRED HAPGOOD
Subj: draft of letter
Read: 07-26-93 (09:08) Status: PUBLIC MESSAGE
Conf: MassModemTax (16) Read Type: GENERAL (+)
Dear Gov. Weld:
I remember that when I read Justice Marshall's pronouncement that
the power to tax is the power to destroy I thought it a
rhetorical flourish. The past few months have shown me how wrong
For years I have been calling an electronic bulletin board in
Cambridge called Channel1. This is a remarkable business,
built from nothing but the sweat equity of two people, Brian
Miller and Tess Heder, and their dedication to giving the highest
level of service in the industry. Their success has been taken
as an example of what is possible in this state and country, and
over the years a number of stories have been written and
broadcast about their achievement.
Earlier this year the DOR informed Brian and Tess that they were
going to be billed for more than $150,000 of back taxes -- an
astonishing sum, considering the small income stream of their
business, and twice over enough to put them out of business.
This bill is based on two elements: a 'use' tax and a brand new
tax that the DOR is 'experimenting' (its phrase) with: a data
The use tax is at least a tax with legislative and judicial
history behind it. The flaw in the DOR claim is that the use tax
is not a publicized tax -- it is in theory a general tax,
applicable to all taxpayers, yet appears nowhere (that I can see)
in the literature given the public about their taxes. In my
opinion part of the function of the DOR is to educate taxpayers
about their liabilities. They ought not to be collecting back
payments (plus 18% interest!) on taxes where they have abdicated
this responsibility. A private company would not be allowed to
bill its customers for charges that had not been disclosed during
the actual sale. It seems clear to me that the DOR should not be
permitted standards of conduct that would be immmoral and illegal
in any other individual or organization.
Perhaps there is room for a difference of opinion on that point.
I am deeply shocked by the other component of this charge; DOR's
experiment with taxing data services. A few years ago the
legislature explicitly exempted data services from sales tax,
while permitting a tax on telephone services. The DOR is now
experimenting with declaring data services telephone services for
the purpose of collecting sales tax. There are dozens of
companies in Massachusetts selling data services. Of them all,
only Channel1 has been targeted for this noxious experiment in
label manipulation. I am astounded by this. It is like watching
the secret police of the USSR at work.
It is obvious to everyone that data services will be the next
megaindustry. Channel1 is a small but model company in this
industry, a business of extraordinary quality, winner of many
national awards and known throughout the data services industry.
Their case is already widely discussed all over the internet.
You do not need me to point out that if the DOR puts Brian and
Tess out of business though such sleazy practices the news will
travel widely and impress itself deeply on those building this
industry. Data services is not a business that depends on local
resources. If we want to drive it out of this state, nothing
would be easier. And putting Brian and Tess into bankruptcy
court would be a great beginning.
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