Town Fair Tire Centers, Inc. v. Commissioner of Revenue
Court: Massachusetts Supreme Judicial Court; August 25, 2009; Massachusetts; State Supreme Court
A Massachusetts vendor selling tangible personal property is not mandated to collect and remit use tax if the customer takes delivery of the merchandise outside the Commonwealth. This determination arises from a sales and use tax audit of Town Fair Tire Centers, Inc. (Town Fair), which revealed that certain tires sold at its New Hampshire stores were purchased by Massachusetts residents who presumably installed them on vehicles registered in Massachusetts. The Commissioner of Revenue assessed use tax and penalties against Town Fair for non-compliance. However, the Appellate Tax Board upheld the commissioner's ruling, stating the tires were intended for use in Massachusetts. Town Fair appealed, and upon review, the court concluded that Massachusetts statutes do not support the assessment of use taxes under these circumstances, leading to a reversal of the board's decision.
During the audit period from October 1, 2000, to April 30, 2003, Town Fair operated stores in both Massachusetts and New Hampshire. The company collected Massachusetts sales tax on tire sales in its Massachusetts stores but did not collect use tax for sales outside Massachusetts. The audit utilized a block sampling method, focusing on 313 invoices from September 2002 that indicated Massachusetts addresses. Despite these invoices, there was no evidence that the sold tires were stored or used in Massachusetts, nor did the board or commissioner assert such a finding. The auditor’s conclusion, based solely on the addresses, was that Town Fair should have collected use tax for those sales, a conclusion ultimately rejected by the court.
The commissioner assessed Town Fair approximately $108,947 in uncollected use taxes based on sales made. Town Fair's application for an abatement was denied, leading to an appeal to the board, which upheld the commissioner's decision. The board determined that the evidence, including Massachusetts addresses and phone numbers, indicated that tires sold in relevant transactions were installed on vehicles owned by Massachusetts residents. It inferred that these vehicles likely had Massachusetts registration and concluded that the sales constituted tangible personal property transactions subject to Massachusetts use tax.
The review of the board's decision is governed by the principle that it will not be reversed if based on a correct legal application and substantial evidence. While courts grant deference to reasonable agency interpretations of statutes, they retain ultimate authority in statutory interpretation, especially when an agency's interpretation is incorrect.
The use tax and sales tax are integral parts of Massachusetts' tax system, aimed at covering transactions involving tangible personal property for storage, use, or consumption within the state, unless exempted. The use tax is established under G. L. c. 641, imposing a five percent excise tax on such property. Liability typically falls on purchasers, who may offset tax paid in other states against this liability. Under G. L. c. 641. 4, vendors engaged in business in the Commonwealth must collect use tax on applicable sales and provide receipts, with the tax owed to the Commonwealth if the vendor fails to collect.
The board upheld the commissioner's ruling regarding Town Fair's liability for use tax under G. L. c. 641, rejecting Town Fair's arguments that the transactions did not fall under the statute due to a misinterpretation of the law. Town Fair asserted that a vendor's liability for use tax does not arise solely from a purchaser's intent to store or use merchandise in Massachusetts; rather, liability exists only if the tires were actually stored, used, or consumed in the state. The court agreed, emphasizing that use tax is due only if it is applicable as per G. L. c. 641. 2, which stipulates that a vendor must collect use tax only when tangible personal property is stored, used, or consumed in Massachusetts.
The court noted that there was no evidence indicating that the tires sold were actually used or stored in Massachusetts, contradicting the board's inference based on the purchasers' Massachusetts residence and vehicle registration information. The board's conclusion that use tax liability arises at the point of purchase based on intent, rather than actual use, was deemed untenable and unsupported by the statute. The court reiterated that actual use in Massachusetts is a prerequisite for imposing the use tax, referencing prior case law that clarifies this requirement.
The commissioner contends that mere "intent" to use goods in Massachusetts does not suffice to invoke the use tax. She argues that "compelling circumstantial evidence" indicates the tires were sold to Massachusetts residents and affixed to vehicles registered in the state, leading to a "presumption" of use in Massachusetts. However, this argument is rejected. Massachusetts law specifies that a presumption of use arises only when tangible personal property is sold for delivery within the Commonwealth or shipped into the Commonwealth within six months of purchase. No presumption exists for goods sold to Massachusetts residents outside the state, even if those goods are later affixed to registered vehicles. The legal principle dictates that tax statutes must not be interpreted to extend beyond their explicit terms. The absence of a statutory presumption regarding a vendor's knowledge of a purchaser's residency underscores this point, particularly as other states have enacted such presumptions. The decision of the Appellate Tax Board is reversed, reaffirming that the vendor must collect the use tax at the time of sale, constituting a debt owed to the Commonwealth. This tax obligation is recoverable by the vendor from the purchaser as a standard debt.
Town Fair is a registered vendor in Massachusetts, operating similarly across its New Hampshire stores, where no sales tax is imposed. In typical transactions, customers select tires, and technicians handle installation before delivering the vehicle back to the customer. Evidence indicates that the name and address on invoices do not always correspond to the vehicle owner, with about five percent of invoices having out-of-state area codes and some reflecting non-Massachusetts driver’s licenses. An auditor reviewed 313 invoices with Massachusetts addresses, resulting in a use tax assessment based on 283 invoices, excluding 30 that were credit memos. The appeal does not involve sales tax and penalties related to Town Fair's unrelated activities. Amicus briefs from New Hampshire and the Council on State Taxation (COST) were acknowledged, though the commissioner disputes certain arguments presented by COST. Following a law signed on June 29, 2009, the Massachusetts use tax rate increased to 6.25% effective August 1, 2009. Massachusetts General Laws define "storage" and "use" concerning tangible personal property, clarifying that Town Fair was "engaged in business in the Commonwealth" due to its 18 stores in Massachusetts. The definition of this engagement includes having a business location in the state. The statute's obligation regarding use tax is treated as a tax liability, emphasizing a substance-over-form approach in taxation jurisprudence.
Town Fair's customer interactions were limited to New Hampshire, and there is no evidence that the tires were delivered or installed on vehicles registered in Massachusetts. The board's reliance on Commissioner of Revenue v. J.C. Penney Co. to impose a use tax based on the purchaser's intent to use the tires in Massachusetts is unfounded, as in that case, there was clear evidence of delivery in Massachusetts, which is absent here. The applicable use tax statute requires that goods be used in Massachusetts after being purchased outside the state. The board's conclusion lacked substantial evidence, particularly since the presumption of use in Massachusetts was not permissible without supporting evidence. The case of Macton Corp. illustrates that a statutory presumption for tax liability must be supported by evidence showing the property was intended for use in Massachusetts. Consequently, Town Fair was not obligated to rebut an unfounded presumption of tax liability.
Tangible personal property delivered outside of a state to a purchaser known by the retailer to be a resident of that state is presumed to be purchased for storage, use, or consumption within the state. This presumption is outlined in Nev. Rev. Stat. § 372.255 (2007). The board's reliance on the case Montgomery Ward Co. v. State Bd. of Equalization, 272 Cal. App. 2d 728 (1969), affirmed that knowledge of purchasers being residents was adequate to determine that the items were purchased for use in the respective state. The Montgomery Ward case referenced California's statutory presumption, specifically citing Cal. Rev. Tax Code § 6247, which supports the board's authority to assess taxes on those sales. However, the absence of a similar statutory provision in Massachusetts means the board's reliance on California's reasoning was inappropriate. Consequently, the court found it unnecessary to examine Town Fair's claims regarding potential violations of the due process and commerce clauses of the U.S. Constitution.
