State Supreme Judicial Court Ruled in Favor of Client, Town Fair Tire, Inc., in Case Involving Collection of Use Taxes

S&W Press Release
August 25, 2009

BOSTON, MA, August 25, 2009 – The Massachusetts Supreme Judicial Court (SJC) today rejected the Department of Revenue’s (DOR) attempt to require multistate retailers to collect Massachusetts “use tax” on over‑the‑counter sales made to Massachusetts residents outside the Commonwealth.

The case arose from a dispute between the DOR and Town Fair Tire, Inc., a Connecticut-based retailer with stores in Massachusetts, New Hampshire and throughout New England. The DOR assessed Town Fair Tire for Massachusetts “use tax” that it failed to collect from customers at its New Hampshire stores.

“We are extremely pleased that the Supreme Judicial Court has concluded that Town Fair Tire is not required under the current statute to collect Massachusetts use tax,” remarked David J. Nagle, a Tax Partner in the Boston Office of Sullivan & Worcester who represented Town Fair Tire.

The case has potential consequences for other multistate retailers whose customers cross the border to buy merchandise in states that have no sales taxes or lower sales taxes. Under the court’s decision, consumers may be liable for paying “use taxes,” which resemble sales taxes but are imposed on the use of goods in Massachusetts, but retailers like Town Fair Tire are not required to collect this tax if their sales occur entirely outside Massachusetts.

The DOR argued that Town Fair Tire had an obligation to collect “use tax” from customers shopping in its New Hampshire stores, and it sought significant tax and interest from Town Fair Tire.

The state Appellate Tax Board ruled that the retailer should have been aware that its merchandise would be used in Massachusetts and was therefore liable for collecting the tax.

On appeal, however, the Massachusetts SJC rejected the DOR’s position that Town Fair Tire was required to collect use tax on out-of-state sales. The SJC held that a vendor like Town Fair Tire is liable for use tax under the statute only if its merchandise is “actually stored, used or consumed in Massachusetts.” In this case, there was no evidence that Town Fair Tire’s customers actually used the tires in question in Massachusetts, and the court rejected the DOR’s presumption of such use based on the mere intent of its customers. As the court reasoned, the Massachusetts legislature has specified with particularity the circumstances in which “for use in the Commonwealth” may be presumed, and in the absence of a statutory basis for presuming actual use, the DOR erred in presuming that tires sold to a Massachusetts resident outside the Commonwealth were actually used there.

The action by DOR prompted a “border war” between Massachusetts and New Hampshire. New Hampshire recently passed a new law prohibiting retailers from sharing private customer information with Massachusetts auditors.

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Leah Schloss