Tire dealerships, especially multi-state operations in New England, should keep a wary eye on the Town Fair Tire Centers Inc. “use tax” case heading to the Massachusetts Supreme Judicial Court in April.
The outcome of this case could set a precedent—and not a good one should Massachusetts prevail—on products purchased in one state but used in another.
Such a ruling would shift the responsibility for paying the use tax unfairly to the retailer from the customer, in large part because customers rarely comply with the law requiring them to report out-of-state purchases.
At issue is whether Town Fair Tire—which operates stores in both Massachusetts, which has a 5-percent sales tax, and New Hampshire, which has no sales tax—is obligated to charge Massachusetts residents a 5-percent use tax on tires they buy and have mounted on their vehicles at its New Hampshire stores.
The Massachusetts Department of Revenue (DOR) assessed Town Fair $108,947 in taxes, plus penalties and interest, the agency claims it should have charged customers. Town Fair argued that it would have no way of knowing for sure the tires would be “used” in Massachusetts, therefore invoking a use-tax assessment.
Massachusetts residents are obligated to report out-of-state purchases and pay the required use tax on their income tax returns, something the DOR admits doesn't happen very often. So it appears the state wants to shift the reporting and remitting responsibility to the retailer from the customer.
Town Fair's attorneys and outside observers see this as a test case that could impact all tire dealers that have stores in both states.
Under the state requirement, Town Fair would have to prove where the tires are used after they leave its stores—something it would have no absolute knowledge of or control over.
If the DOR wins its argument that tire dealers must assess Massachusetts residents a use tax on over-the-counter sales in their New Hampshire stores, it could impose a greater paperwork burden on retailers, not to mention potential unfair competition and sour customer relations.
The use tax is aimed at leveling the playing field between Massachusetts retailers that have to charge a sales tax and their competitors across the state line that don't.
In true fairness, though, the burden of a use-tax assessment should be on the purchaser, not the retailer.
As a Town Fair attorney noted, tire dealerships that operate in both states will be at a competitive disadvantage if they have to charge a use tax in their New Hampshire stores—Massachusetts residents simply may opt to take their business to a New Hampshire-based retailer that's not obligated to charge a use tax.
The state Supreme Court should rule in favor of Town Fair Tire and every other multi-state retailer and place the burden for paying the use tax squarely on the shoulders of consumers, where it belongs.