Chalk one up for tire dealers in their constant tussle with government regulations.
Town Fair Tire Centers Inc.'s five-year battle with the Massachusetts Department of Revenue (DOR) over the assessment of use taxes on its New Hampshire stores ended Aug. 25 when the Massachusetts Supreme Judicial Court (SJC) ruled in favor of the tire dealership.
At issue was whether the DOR could assess the dealership for state sales taxes, called a use tax, on purchases made by Massachusetts residents in tax-free New Hampshire under the presumption the tires, in this case, would be used in Massachusetts.
Massachusetts' top court reversed a state Appellate Tax Board ruling, stating in its opinion: There is no evidence that the tires sold by Town Fair were actually stored, used or consumed in Massachusetts .
We are pleased with the court decision, said David Nagle, a tax partner in the Boston office of Sullivan and Worcester L.L.P., the law firm representing Town Fair. The court reaffirmed the company had no obligation to collect the tax.... It rejected the Department of Revenue's attempt to presume actual use based on circumstantial evidence.
The SJC decision is the end of the line for this case, since it does not involve constitutional issues that might require the attention of a higher court, the DOR said in a statement.
However, it noted the decision leaves the use tax law intact, namely that those Massachusetts residents who purchase items in a no-tax state for use in Massachusetts are, as a matter of law, supposed to report the use tax, equivalent to the Massachusetts sales tax, on their state income tax form.
One tire dealer agreed with the view that the customer is responsible for reporting untaxed purchases. His New Hampshire stores have signs stating that fact.
Due to the political nature of the issue, the tire dealer wanted to remain anonymous, but he and other multi-state businesses, as well as tax analysts, followed the case and its potential wide-ranging ramifications for interstate commerce if the court ruled differently. Yet the court focused only on the Town Fair tax assessment and declined to consider other arguments by the dealership of possible violations of the due process clause and commerce clause of the U.S. Constitution.
There is no Massachusetts statutory presumption of use in the Commonwealth where personal property is sold to a Massachusetts resident outside the Commonwealth, even where the goods purchased out of state may be affixed to property registered in Massachusetts.
We will not recognize a presumption that the legislature has not established, the Supreme Judicial Court said in its opinion, adding, The legislature may, of course, enact such a presumption .
So can multi-state tire dealers breathe a sigh of relief?
There's always the legislature, quipped Mr. Nagle. For the time being, the immediate crisis has passed.
The case began when the DOR conducted a sales/use tax audit of Town Fair's records and discovered numerous purchases by Massachusetts residents in its New Hampshire stores between October 2001 and April 2003 were not assessed the state's use tax. So the DOR assessed Town Fair the taxes, along with penalties and interest, totaling $229,311.
Massachusetts charged a 5-percent sales tax at the time; neighboring New Hampshire has no sales tax. That entices Massachusetts residents to cross the state line to purchase big ticket items. However, Massachusetts imposes a use tax on its residents, essentially a sales tax on items purchased outside the state but used within its borders.
Since a miniscule number of residents pay use tax on their tax returns, according to the DOR, it claimed retailers operating outlets in both Massachusetts and other states should be collecting the use tax at the point of purchase. The use tax collection didn't affect New Hampshire retailers who don't operate in Massachusetts. East Haven, Conn.-based Town Fair operates 74 locations, including 25 in Massachusetts and seven in New Hampshire.
The DOR claimed the dealership should have collected about $108,947 in use taxes on 313 sales to Massachusetts residents during the audited period, noting that the invoices contained Massachusetts addresses, and in most cases, Massachusetts telephone numbers.
The DOR also claimed tires were mounted on vehicles registered in Massachusetts.
Town Fair appealed the assessment to the Massachusetts Appellate Tax Board, which ruled in the DOR's favor in June 2008. So the dealership appealed to the state appellate court last fall. But the issue generated so much attention and potential wide-ranging implications, that the state's top court leapfrogged the appeal process and took up the case itself.
Meanwhile, New Hampshire took umbrage that its neighbor was trying to assess taxes from one of its resident businesses and proceeded to draw up and enact a law over the summer that bars retailers from providing private consumer information to another state for a determination of use or sales tax liability when such disclosure is inappropriate. The law puts the burden on other states to demonstrate whether a good or service purchased in New Hampshire is to be used, stored or consumed in another state.
New Hampshire's attorney general also filed an amicus curiae brief supporting Town Fair in its court case.
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