Sales Tax Slice: Hyperloop Might Not Send Sales Tax Revenues into Hyperdrive


Hyper Loop

On July 20, 2017, Elon Musk tweeted that he had received verbal approval from the government for The Boring Company to build a hyperloop that would enable individuals to travel between New York City and Washington, D.C. in 29 minutes. (Just an FYI: the Boring Company is a tunneling company that Elon Musk founded after being caught in Los Angeles traffic.) Musk claims that the hyperloop would also pass through Philadelphia and Baltimore at speeds of about 700 miles per hour. Musk did not state from whom he had received this verbal approval or when construction would start. More importantly to tax professionals, he did not state whether sales and use taxes would apply to purchases for the construction of this proposed hyperloop.

Whether or not materials and labor used to build the now only conceptual hyperloop are taxable differs from state to state. The rules regarding the taxability of construction materials also vary depending on whether they are used in construction contracts with government entities or other tax-exempt entities.

In the District, materials that are used in the construction or alteration of real property are generally subject to tax.[1] However, sales of materials to contractors performing construction contracts with the United States or District governments or nonprofit organizations are exempt from tax. Additionally, if contractors mistakenly pay sales or use tax on such materials, they may seek a refund for those taxes.[2]

Conversely, across the border in Maryland, where the hyperloop would apparently stop in Baltimore, contractors must pay tax on purchases of materials for use in fulfilling contracts for the state or federal governments, along with its agencies and instrumentalities.[3] However, Maryland does exempt purchases by contractors to complete a construction project for private, nonprofit, charitable, educational, or religious organizations.[4]

It is unclear at this point who would ultimately commission and pay for the construction of the hyperloop. If the federal government or the individual state governments are the purchaser, construction contractors building the structure may be eligible for some tax exemptions. However, if Elon Musk’s humorously named Boring Company contracts to build the tunnel, contractors will generally need to pay taxes on their purchases.

While others worry about how to minimize their tax liability, I’m just excited about the prospect of going from D.C. to New York City without worrying about traffic.

Continue the discussion on LinkedIn: Should states impose sales and use taxes on construction materials to build new transportation infrastructure?

Get a free trial to Bloomberg BNA Tax & Accounting's State Tax solution, a comprehensive research service that provides deep analysis and time-saving practice tools to help practitioners make well-informed decisions.


[1] D.C. Code Ann. §47-2001(n)(1)(E).

[2] D.C. Mun. Regs. tit. 9, §438.8.

[3] Md. Regs. Code §03.06.01.19(E).

[4] Md. Regs. Code §03.06.01.19(D).