Pixley v. Commissioner of Revenue

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21-P-805 Appeals Court

MELISSA PIXLEY & others1 vs. COMMISSIONER OF REVENUE.

No. 21-P-805.

Berkshire. October 6, 2022. – June 22, 2023.

Present: Green, C.J., Henry, & Englander, JJ.

Cellular Telephone. Taxation, Sales tax, Commissioner of
revenue. Commissioner of Revenue. Declaratory Relief.
Practice, Civil, Declaratory proceeding.

Civil action commenced in the Superior Court Department on
July 7, 2017.

A motion to dismiss was heard by John A. Agostini, J., and
entry of separate and final judgment was ordered by him.

Jeffrey S. Morneau for the taxpayers.
Richard S. Weitzel, Assistant Attorney General, for
Commissioner of Revenue.

ENGLANDER, J. This case concerns the sales tax that is

collected in a transaction where the consumer purchases a

discounted cell phone, bundled with the consumer's agreement to

1 William Harrington, Jr., and William Hillman.
2

use a carrier's wireless services for a period into the future.

Pursuant to Department of Revenue Directive 11-2, issued in

2011, the sales tax assessed on the cell phone purchased in such

a "bundled transaction" is based upon the higher of the phone's

wholesale cost to the carrier, or the cash price the consumer

actually pays.

The plaintiffs in this purported class action are consumers

who purchased cell phones in such bundled transactions, and they

challenge the directive, and the tax imposed, on the ground

(among others) that the taxes imposed on the cell phone and the

wireless services exceed the authority of the Commissioner of

Revenue (commissioner) under the sales tax statute, G. L.

c. 64H. The thrust of the plaintiffs' argument is that the

directive causes consumers in such bundled transactions to pay a

tax on more than the price they paid for the cell phone and the

services. For his part, the commissioner concedes that a tax is

assessed on more than the consumer pays in money; the

commissioner justifies the tax, however, on the theory that the

cell phone and services contract have a taxable value apart from

the money the consumer actually pays. For the reasons that

follow, we agree that the directive is contrary to the statutory

definition of the price that is subject to sales tax under G. L.

c. 64H, § 1, and that the plaintiffs are entitled to a

declaratory judgment so stating.
3

Background. 1. General Laws c. 64H. Sales taxes in

Massachusetts are governed by G. L. c. 64H. Section 2 of that

chapter mandates a 6.25 percent tax on retail sales of tangible

personal property and services. The tax is based on a vendor's

"gross receipts" from "sales at retail," which the statute

defines as "the total sales price received by a vendor as . . .

consideration." G. L. c. 64H, §§ 1, 2. In turn, the statute

defines "sales price" as "the total amount paid by a purchaser

to a vendor as consideration for a retail sale, valued in money

or otherwise." G. L. c. 64H, § 1. This case concerns an aspect

of how one determines the "sales price" of the property or

services that are subject to tax.

In practice, and as required by the statute, payment of the

sales tax involves the following steps. When a vendor purchases

an item from a wholesaler to resell it to a consumer, the vendor

gives the wholesaler a resale certificate stating that the item

is being purchased for resale, so that the vendor does not have

to pay the sales tax at that time. See G. L. c. 64H, § 8 (a).

At the time of the retail sale, the vendor collects

reimbursement for the sales tax from the consumer and, later,

remits the sales tax to the commissioner. See G. L. c. 64H,

§§ 2, 3. However, if the vendor makes any use of the item

"other than retention, demonstration or display while holding it

for sale in the regular course of business," then the vendor in
4

effect becomes the consumer of the item, and must itself pay the

sales tax, measured by the wholesale cost of the item. G. L.

c. 64H, § 8 (d).

2. 830 Code Mass. Regs. § 64H.1.4. When a vendor uses the

item itself, it is easy enough to treat the vendor as the

consumer for sales tax purposes. Issues naturally arise,

however, when the vendor resells or transfers an item to a

consumer for no consideration, or at a substantial loss or

discount below the wholesale cost, typically as part of a

promotion. In 2000, the Department of Revenue (department)

promulgated 830 Code Mass. Regs. § 64H.1.4 (regulation) to

address the sales tax on promotional items. The regulation

provides that where a vendor sells an item to a retail consumer

at substantially below cost, or for no or nominal consideration,

the item "constitutes a promotional item for sales tax

purposes," "the vendor is considered its consumer," and the

vendor must pay the sales tax based on the wholesale cost of the

item. 830 Code Mass. Regs. § 64H.1.4(1) (2000). The regulation

permits the vendor to "claim a credit for any tax collected from

the retail consumer." Id.

3. Directive 11-2. That brings us to the "bundled"

transactions at issue here, by which consumers purchase cell

phones but also agree to purchase wireless services for a period

into the future. In such transactions, the price the vendor
5

assigns to the sale of the cell phone is often below wholesale

cost, or even free. In 2011, the department issued guidance --

in the form of a directive -- specifically to address the sales

tax on cell phones sold in such bundled transactions. See

Department of Revenue Directive 11-2 (April 27, 2011) (directive

11-2). Directive 11-2 provides that the sales price of a cell

phone sold in a bundled transaction is the higher of either the

cash price paid or the cell phone's wholesale cost, and that the

sales tax must be paid on that amount. The directive also

permits wireless service carriers and independent retailers to

collect from their customers the full amount of the sales tax,

even when the sales tax is based on the wholesale cost of a cell

phone.2 Directive 11-2 is the directive that the plaintiffs

challenge.3

2 Directive 11-2 specifically provides as follows:

"In situations where the wholesale cost of the phone or
other device is used for calculating the tax (because it is
higher than the amount paid by the customer), the seller
may collect and remit tax from the customer on the
wholesale cost. Alternatively, the vendor may elect to
assume a portion of the tax by collecting tax from the
customer only on the lesser amount actually paid by the
customer, in which case, the vendor must also remit tax on
the difference between that lesser amount and the wholesale
cost" (footnote omitted).

3 Previously, pursuant to two other directives, Department
of Revenue Directive 93-9 (December 23, 1993) (directive 93-9)
and Department of Revenue Directive 94-2 (February 4, 1994)
(directive 94-2), the department treated wireless service
carriers and independent retailers differently in determining
6

Procedural history. In July of 2017, the plaintiffs filed

a complaint against the commissioner and various cell phone

vendors.4 As against the commissioner, the complaint alleged

that (1) directive 11-2 is invalid because it conflicts with

G. L. c. 64H, § 2, as that statute provides that the sales tax

is to be imposed on "gross receipts," and (2) directive 11-2 is

a regulation that was not properly promulgated in accordance

with the notice and comment requirements of the Administrative

Procedure Act, G. L. c. 30A.

The plaintiffs asserted six claims against the

commissioner. Counts I through IV alleged that the commissioner

had received excess sales tax, which the plaintiffs sought to

recover.5 Count V sought declaratory as well as injunctive

relief –- for example, a declaration that directive 11-2 is

the sales tax on cell phones sold in bundled transactions,
although in each instance the commissioner sought to collect a
tax at least on the wholesale cost of the cell phone. Seventeen
years after issuing directives 93-9 and 94-2, the department
decided that it no longer made sense to treat wireless service
carriers and independent retailers differently, given that
"business models in the industry [had] evolved." Directive 11-
2. Accordingly, the department issued directive 11-2.

4 Following the dismissal of the claims against the
commissioner, the plaintiffs and cell phone vendors stipulated
to dismissal of the plaintiffs' claims against the cell phone
vendors, without prejudice, and those claims are not at issue in
this appeal.

5 Counts I through IV were for the following: money had and
received (count I), unjust enrichment (count II), accounting
(count III), and constructive trust (count IV).
7

"void and unenforceable," and an injunction ordering the

commissioner to "grant all refund requests made by any vendor or

[the] [p]laintiffs and the [c]lass with regard to excess sales

tax paid by them." Finally, count VI alleged violations of the

Administrative Procedure Act.

The commissioner filed a motion to dismiss for failure to

state a claim upon which relief could be granted, and in

February 2018, a Superior Court judge allowed the motion. The

motion judge concluded that directive 11-2 is consistent with

the statutory and regulatory scheme, and that it is not a

"regulation" that was required to go through the notice and

comment requirements of the Administrative Procedure Act. The

plaintiffs appeal, and we now reverse so much of the judgment as

dismissed the plaintiffs' claim for a declaratory judgment.

Discussion. As indicated, the sales tax statute taxes the

vendor on the "gross receipts" the vendor receives from "sales

at retail." G. L. c. 64H, § 2. "Gross receipts" is defined, in

turn, as "the total sales price received by a vendor as . . .

consideration" (emphasis added). G. L. c. 64H, § 1. As

described below, directive 11-2 is at odds with this statutory

definition, because it directs the collection of a tax on more

than the "total sales price received" by the vendor. To the

extent the plaintiffs seek a declaratory judgment that the
8

directive is invalid, the motion to dismiss should not have been

granted.6

6 This case presents significant issues with respect to what
relief the plaintiffs may be entitled to, even where the
commissioner's directive leads to an ultra vires tax. As the
Commonwealth points out, the plaintiffs are not the statutory
taxpayers; the vendors are the ones required to remit the tax to
the Commonwealth. Several of the counts of the plaintiffs'
complaint seek relief that would have the commissioner making
payments to the plaintiffs. We agree with the commissioner that
such relief is not available to the plaintiffs, where they are
not the taxpayers and particularly where there is no indication
that anyone filed tax abatement applications. See Worldwide
TechServs., LLC v. Commissioner of Revenue, 479 Mass. 20, 30-31
(2018). Counts I through IV of the complaint accordingly were
properly dismissed.

The plaintiffs' claim for declaratory judgment stands on a
different footing, however. The Supreme Judicial Court has held
that such relief can be available, notwithstanding G. L. c. 62C,
§ 41's, limitation of remedies to those appearing in G. L.
c. 62C, §§ 37-40. See Green v. Commissioner of Corps. &
Taxation, 364 Mass. 389, 390 (1973) (limitation does not
"prevent courts of equity, as a discretionary matter, from
entertaining bills for declaratory relief"). And as noted, the
plaintiffs here are not the taxpayers and thus are not entitled
to seek an abatement under the statutory scheme. See Worldwide
TechServs., LLC, 479 Mass. at 31. Under these circumstances,
where the question presented is a question of law, the
plaintiffs are the parties that ultimately pay the tax, and the
plaintiffs otherwise would have no sure avenue to challenge the
legality of the tax, it is appropriate to entertain the
plaintiffs' request for a declaratory judgment. See Bettigole
v. Assessors of Springfield, 343 Mass. 223, 235 (1961) ("where
the plaintiffs show that they themselves will be directly and
adversely affected by the imposition of the tax, a declaration
may be made whether and to what extent a tax affects the rights
of the parties to the particular case").

The plaintiffs' request for injunctive relief suffers from
many of the same problems as counts I through IV, but given our
resolution herein, the claim for injunctive relief should be
addressed by the judge on remand.
9

A straightforward hypothetical transaction illustrates the

commissioner's error. Assume the consumer enters into a so-

called "bundled transaction"7 where he or she pays $100 for a

cell phone, and also signs a two-year contract to use the

vendor's wireless services, at $100 per month. Assume further

that the wholesale cost of the cell phone was actually $600.

Over the course of the two-year agreement, the consumer will pay

the vendor $2,500 ($100 for the cell phone, plus twenty-four

times $100 per month). Under the directive, however, the

Commonwealth will tax the phone at its wholesale cost, and also

tax the services as they are rendered and paid for. See

directive 11-2 (noting bundled transactions include "taxable

telecommunications services"). See also G. L. c. 64H, § 2 (tax

imposed on "sales at retail . . . of services" [emphasis

added]). The Commonwealth thus will receive a sales tax on

$3,000 in purported sales ($600 plus $2,400), even though the

consumer only paid $2,500. And this entire tax will likely be

passed onto the consumer, who then pays a tax on more than he or

she paid for the "bundled transaction." See directive 11-2

7 Directive 11-2 defines a "bundled transaction" as "a sale
of a cellular telephone or other wireless communication device
in which the customer gets a reduced price on the phone or
device if he or she enters into a contract including
telecommunications services at the time the phone or device is
purchased, including renewals, upgrades and modifications to
existing service contracts."
10

(vendor must remit tax, and can then "collect part or all of

that tax from the retail customer").

Directive 11-2 does not confront this issue, nor does the

commissioner in his brief to this court. Neither mentions that

the payments the consumer makes for wireless services under the

"bundled" contract are also subject to sales tax, nor does the

commissioner acknowledge, directly, that he is taxing more than

the total money the consumer pays across the entire transaction.

But the commissioner nevertheless attempts to justify the

directive based on the words "or otherwise" in the sales tax

statute's definition of "sales price." That definition is:

"the total amount paid by a purchaser to a vendor as

consideration for a retail sale, valued in money or otherwise"

(emphasis added). G. L. c. 64H, § 1. According to the

commissioner, in a bundled transaction, the consumer is not just

paying money (for both the cell phone and twenty-four months of

services), but is also providing additional "consideration of

substantial value . . . in non-cash form." At oral argument,

the commissioner suggested that this additional value arises

from the consumer's contractual commitment, and the dissent

adopts that view here. See post at (arguing taxable

"consideration" is "the contractual commitment to purchase

wireless services . . . for a minimum period of time"). Thus,
11

the argument is that this "contractual commitment" has

nonmonetary ("or otherwise") value that is separately taxable.

As applied to a bundled cell phone transaction, this

nonmonetary "consideration" theory is both unprecedented, and

incorrect. The consumer is paying money -- that is all. The

two-year contractual commitment is to pay money for services;

that monetary payment is fully taxed. See G. L. c. 64H, § 2.

There is no additional consideration coming from the consumer

that otherwise goes untaxed. This is not a situation where the

consumer is providing value to the seller in a nonmonetary form

–- for example, some kind of barter. This is not a situation in

which a store sells jewelry to a consumer for $300, but reduces

the price by $100 based on the value of other jewelry a consumer

provides in trade. In that circumstance, the sales price for

tax purposes is $300, even though the consumer only paid $200 in

money. The "or otherwise" clause exists to cover those

nonmonetary payment situations, but it does not apply where all

the consideration the consumer gives is money.8

8 The dissent suggests that we should be "deferring," see
post at , to the commissioner's position, but no deference is
appropriate where, as here, the commissioner's position is at
odds with the language of the statute. See, e.g., Duarte v.
Commissioner of Revenue, 451 Mass. 399, 411 (2008), quoting
Telles v. Commissioner of Ins., 410 Mass. 560, 564 (1991)
("agency 'has no authority to promulgate rules and regulations
which are in conflict with the statutes or exceed the authority
conferred by the statutes' under which the agency operates");
Tartarini v. Department of Mental Retardation, 82 Mass. App. Ct.
12

In this case the commissioner and the dissent do not point

to any tangible "or otherwise" payment, but instead claim that

the consumer's contractual "commitment" itself has intrinsic

taxable value. The concept finds no support in the statutory

language, the case law, or other authority. From the vendor's

perspective, the "commitment" may indeed have intangible value,

but only if that "commitment" results in new and additional

sales -- for example, sales of ancillary goods or services, or a

"re-up" of the contract after two years. But the possibility

that the consumer will enter into new and different contracts is

not part of the "total amount paid" for the bundled transaction

at issue (emphasis added). G. L. c. 64H, § 1. Such future

possibilities are no more than customer goodwill, and nothing in

the statutory language "total sales price," or the case law,

suggests that the sales tax can be imposed on perceived customer

goodwill arising from a sales transaction.9 And of course, if

the consumer does in fact enter into a new contract (i.e., "re-

up"), the monies paid for services under the new contract will

be taxed. See G. L. c. 64H, § 2.

217, 220 (2012) (principle "is one of deference, not
abdication").

9 This customer goodwill is what the dissent suggests is
taxable, post at , when it references that cell phone carriers
"value . . . retaining customers," and controlling "churn."
13

It is true that if the sale of the cell phone below cost,

and the sale of the wireless services, were actually two

separate transactions, then the commissioner likely could

justifiably tax the separate transactions at a greater total

price than the amount paid by the consumer in a bundled

transaction. But that is because if the cell phone were sold

separately, below cost, the commissioner would treat the phone

as a "promotional item" under 830 Code Mass. Regs. § 64H.1.4(1),

and "the vendor is considered its consumer." In that

circumstance the vendor pays the tax, "based upon the amount the

vendor paid for the item" (i.e., the wholesale cost). 830 Code

Mass. Regs. § 64H.1.4(1). Put differently, as two separate

transactions, the consumer would not even be considered the

purchaser of the cell phone, just of the services. However,

there are not two transactions, but only one sale -- the

"bundled" transaction -- and in that circumstance the tax must

be on the total price that the consumer pays.10

10This conclusion flows from the concept of a "sale." The
commissioner cannot deconstruct a single transaction into its
component parts, in order to claim a tax on more than the
consumer paid. Suppose, for example, that a consumer bought a
car for $30,000, and the dealer also provided winter floor mats
at "no additional charge." The commissioner could not impose a
tax on the $30,000 sale, and also, separately tax the sale of
the floor mats. Cf. 830 Code Mass. Regs. § 64H.1.4(2)(d) (2000)
("If a vendor offers customers . . . merchandise free of charge
with the purchase of other merchandise. . . the sales price
subject to tax is the amount the vendor charges the customer").
14

At the end of the day, the commissioner's position fails

because the only thing the consumer is providing here is money,

and all the monies the consumer pays will be taxed. Where the

cell phone is sold below wholesale cost, the vendor must be

making up the difference through the sale of wireless services,

and perhaps additional ancillary goods or services –- the sales

of all of which will be taxed if and when they occur (unless

specifically exempt). Obviously, if the vendor does not make up

for selling the cell phone below cost through additional sales,

it will be operating at a loss, and the laws of business say

that it will not be operating very long.

Finally, we note the unfairness to the consumer from the

commissioner's directive. The sales tax law says that the tax

is 6.25% of the price the consumer pays for a good or service.

G. L. c. 64H, § 2. But under directive 11-2, in this specific

class of transactions, the consumer is remitting tax at more

than the price they paid. Because the directive conflicts with

the statute it purports to carry out, the motion to dismiss

should not have been allowed as to the plaintiffs' claim for

declaratory judgment, and that portion of the judgment is

reversed. The portion of the judgment dismissing the

plaintiffs' claim for injunctive relief is vacated. The
15

judgment is otherwise affirmed. The case is remanded for

further proceedings consistent with this opinion.11

So ordered.

11Deciding the case as we do, we need not address the
plaintiffs' argument that the directive also is invalid because
it is a "regulation" promulgated in violation of the
Administrative Procedure Act. See G. L. c. 30A, §§ 1, 3.
HENRY, J. (concurring in part and dissenting in part). I

agree with so much of the majority's decision as concludes that

the plaintiffs are not entitled to any monetary recovery from

the Commissioner of Revenue (commissioner). See ante at . I

disagree, however, with the remainder of the majority's

decision, which rests on the unfounded assertion that when a

consumer purchases a "bundled" cell phone, the consumer provides

consideration in the form of money, and no other taxable

consideration.1 However, the commissioner has concluded

otherwise, specifically that the consumer provides other taxable

consideration in the form of the contractual commitment to

purchase wireless services from a designated carrier for a

minimum period of time. We review for whether the

commissioner's conclusion can be reconciled with the governing

legislation, and we afford substantial deference to agency

expertise. See Citrix Sys., Inc. v. Commissioner of Revenue,

484 Mass. 87, 94 (2020). See also eVineyard Retail Sales-Mass.,

Inc. v. Alcohol Beverages Control Comm'n, 450 Mass. 825, 829

(2008). The majority's decision is remarkable in that the

1 The majority asserts that in a bundled cell phone
transaction, "[t]he consumer is paying money -- that is all" and
"[t]here is no additional consideration coming from the
consumer." Ante at . Later, the majority again asserts that
"the only thing the consumer is providing here is money." Ante
at . The majority does not provide any evidentiary support
for these assertions; where this case was decided on a motion to
dismiss, there is no such evidence.
2

majority substitutes its opinion for that of the commissioner,

and does so in a case decided on a motion to dismiss, without

any evidentiary support.

At its core, the plaintiffs' lawsuit is based on the idea

that Department of Revenue Directive 11-2 (April 27, 2011)

(directive 11-2) conflicts with the statutory and regulatory

scheme by permitting wireless service carriers and independent

retailers to collect sales tax on amounts that are higher than

the consideration paid in money for cell phones. Giving

appropriate deference to the commissioner, there is no conflict

because (1) the statutory and regulatory scheme permits vendors

to collect sales tax on forms of consideration other than money,

and (2) the commissioner, in his expertise, has concluded that

consumers purchasing bundled cell phones provide additional

noncash consideration in the form of the commitment to purchase

wireless services from a designated carrier.

As the majority notes, the statute imposes a tax on a

vendor's "gross receipts," meaning the "total sales price,"

which the statute defines as "the total amount paid by a

purchaser to a vendor as consideration for a retail sale, valued

in money or otherwise" (emphasis added). G. L. c. 64H, §§ 1, 2.2

2 Likewise, the statutory definition of "sale" expressly
encompasses "barter" transactions. See G. L. c. 64H, § 1 ("[i]
any transfer of title or possession, or both, exchange, barter,
lease, rental, conditional or otherwise, of tangible personal
3

In the context of a bundled cell phone transaction, the

commissioner has concluded that the "or otherwise" clause

includes consideration in the form of a consumer's commitment to

purchase wireless services from a designated carrier.

Especially where we have no evidence that this sort of agreement

does not have value and should not be treated as taxable

consideration, the commissioner's conclusion is a reasonable one

to which we are required to give deference. See Citrix Sys.,

Inc., 484 Mass. at 94. See also eVineyard Retail Sales-Mass.,

Inc., 450 Mass. at 829.3

"The requirement of consideration is satisfied if there is

either a benefit to the promisor or a detriment to the

promisee." Marine Contrs. Co. v. Hurley, 365 Mass. 280, 286

(1974). A detriment "means giving up something which

immediately prior thereto the promisee was privileged to retain,

property or the performance of services for a consideration, in
any manner or by any means whatsoever . . .").

3 According to the majority, the "or otherwise" clause
applies only to forms of tangible consideration, such as when a
store sells jewelry to a consumer for $300 but reduces the price
by $100 based on the value of other jewelry the consumer
provides in trade. However, the statute does not say "or other
forms of tangible consideration," and we do not read words into
a statute that are not there. See Beauchesne v. New England
Neurological Assocs., P.C., 98 Mass. App. Ct. 716, 719 (2020).
Indeed, in a regulation pertaining to the sales tax on cars, an
example specifically provides that a consumer who pays for a car
in services is taxed on the value of those services. See 830
Code Mass. Regs § 64H.25.1(5)(d) (1996) (example 5).
4

or doing or refraining from doing something which he was then

privileged not to do, or not to refrain from doing" (quotation

and citation omitted). Graphic Arts Finishers, Inc. v. Boston

Redev. Auth., 357 Mass. 40, 42-43 (1970). A benefit means "the

receiving as the exchange for his promise of some performance or

forbearance which the promisor was not previously entitled to

receive" (quotation and citation omitted). Id. at 43.

Here, the commissioner has concluded that, in exchange for

a cell phone, a consumer provides consideration in the form of a

commitment to purchase wireless services from a designated

carrier. That conclusion is reasonable where the commitment is

a "detriment" to the consumer –- who by entering into the

agreement gives up the right to switch wireless service carriers

at will. See Graphic Arts Finishers, Inc., 357 Mass. at 42-43.

Likewise, the commitment is a "benefit" to the carrier, who

receives a binding promise that the consumer will use (and pay

for) the carrier's wireless services for a minimum period of

time.4 See id. at 43. As explained by the commissioner, bundled

cell phone transactions "would not have gained any traction as a

business model unless vendors were receiving consideration of

substantial value –- albeit in non-cash form –- to offset the

4 Where bundled cell phone transactions are made by
independent retailers, the value of the commitment is passed on
to the independent retailer in the form of a commission. See
Department of Revenue Directive 93-9 (December 23, 1993).
5

substantial cash price discount on the phone itself. Otherwise,

they would be operating at a loss." This is a reasonable

conclusion that explains why vendors would regularly sell cell

phones at a cash price far below even wholesale cost. It should

be given deference.

The majority concludes otherwise, despite the lack of any

evidence in the record to support its view. In particular, the

majority improperly speculates on the economics of the cell

phone industry. The majority assumes that a consumer's

commitment to purchase wireless services from a designated

carrier has value only insofar as it results in more sales, and

that vendors "obviously" compensate for selling cell phones

below cost by making these additional sales.5 Ante at .

5 The majority also implies that a cell phone sold in a
bundled transaction is a "freebie" and cites 830 Code Mass.
Regs. § 64H.1.4(2)(d) (2000) for the proposition that, to the
extent a vendor gives away a cell phone as part of a larger
sale, the cell phone cannot be taxed separately. Ante at note
10. However, in a bundled cell phone transaction, the vendor
does not give away the cell phone as part of a larger sale; the
cell phone is the item being sold. The question we are asked to
decide is how much consideration the consumer provides for the
cell phone, and 830 Code Mass. Regs. § 64H.1.4(2)(d) does not
answer that question. The majority's view seems to be based on
the belief that the vendor gives away the cell phone as part of
a transaction also involving the sale of wireless services. But
in a bundled cell phone transaction, there is no sale of
wireless services; there is only the sale of a cell phone
coupled with a contractual commitment to purchase wireless
services. The wireless services are sold later, in a separate
transaction. While the distinction may seem insubstantial, it
is not, as a contractual commitment to purchase wireless
services does not guarantee that those sales actually will
6

Despite the majority's unsupported assertion that its conclusion

regarding the economics of the cell phone industry is obvious,

another explanation could be that cell phone carriers place

value on retaining customers and that their rate of attrition

(or "customer churn") is a significant issue for the industry.

See Mozer, Wolniewicz, Grimes, Johnson & Kaushansky, Churn

Reduction in the Wireless Industry, 12 Advances in Neural

Information Processing Systems 935 (MIT Press 2000)

("Competition in the wireless telecommunications industry is

rampant. To maintain profitability, wireless carriers must

control churn, the loss of subscribers who switch from one

carrier to another"). However, we need not speculate on the

economics of the cell phone industry. Suffice it to say that

the cell phone sale would not occur at the discounted price

without the contract, so the commissioner could and reasonably

did conclude that contractual commitment may stand as a

justification to tax the sale of the cell phone at the full

wholesale price, despite the discount.

The majority also provides an example where a consumer

enters into bundled cell phone transaction and pays $100 for a

$600 cell phone and signs a two-year contract for wireless

occur. In other words, this is not a situation in which a
consumer prepays for two years of wireless services and, in
exchange, a vendor gives the consumer a cell phone, which would
present different economic realities.
7

services costing $100 per month, for a total of $2,500; as the

majority notes, under directive 11-2, the consumer will pay tax

on $3,000. See ante at . This example does not advance the

majority's position because the example does not grapple with

the commissioner's conclusion that the consumer provides

additional noncash compensation in the form of the commitment to

purchase wireless services.

Moreover, there is no inherent unfairness to the consumer

in having to pay sales tax on more than the cash paid. Vendors

set the cash prices for bundled cell phones artificially and

unrealistically low given the additional consideration also

provided.6 The majority's conclusion, that the consumer should

pay sales tax on nothing more than the unrealistically low cash

price, means that the consumer will avoid paying sales tax on

the full value of the transaction.7 Ordinarily, our tax laws

prevent this sort of outcome. See, e.g., 830 Code Mass. Regs.

6 For instance, one of the plaintiffs purchased a cell phone
in a bundled transaction with a wholesale cost of $450 but paid
a discounted price of only ninety-nine cents. See Bellalta v.
Zoning Bd. of Appeals of Brookline, 481 Mass. 372, 378 (2019)
(courts "must avoid any construction of statutory language which
leads to an absurd result" [quotation and citation omitted]).

7 This is not a situation where a vendor offers a steep
discount on its goods as part of a holiday sale, where the full
value of the transaction does equal the cash price paid. This
is a business model built around selling cell phones for low
cash payments combined with another form of valuable
consideration.
8

§ 64H.25.1(5)(b)(2) (1996) (in casual and isolated car sales,

where stated price is unrealistically low, sales tax is due on

average trade-in value).8

On the record before us, there is no basis to set aside the

commissioner's conclusion that a consumer purchasing a bundled

cell phone provides taxable consideration in the form of the

commitment to purchase wireless services from a designated

carrier. Accordingly, I dissent.

8 Given the majority's decision that that directive 11-2
conflicts with the statute, the majority does not address
whether directive 11-2 conflicts with 830 Code Mass. Regs.
§ 64H.1.4 (2000). The regulation states that a vendor "may
claim a credit for any tax collected from the retail customer."
830 Code Mass. Regs. § 64H.1.4(1). Directive 11-2 states that a
"seller may collect and remit tax from the customer on the
wholesale cost." The only pertinent difference between the
regulation and directive 11-2 is that the directive expressly
permits wireless service carriers and independent retailers to
collect from their customers the sales tax on the wholesale cost
of a cell phone, whereas the regulation is silent on that point.