Early this month, the Appellate Tax Board issued a decision involving the application of Massachusetts use tax to trucks that could have implications for all transportation companies doing business in the Commonwealth.

In Regency Transportation, Inc. v. Commissioner, the Board held that Regency Transportation, an interstate freight transportation company, was subject to Massachusetts use tax on vehicles purchased outside of Massachusetts, because those vehicles were stored and used in Massachusetts.  The vehicles in question had all been purchased in states that either did not impose a sales tax or did not impose a sales tax on vehicles engaged in interstate commerce.

The taxpayer had argued that the vehicles were exempt from tax because they were engaged in interstate commerce (the taxpayer’s transportation business covered the entire Eastern United States), and that the imposition of the tax to taxpayer failed to satisfy the four-pronged test in Complete Auto Transit.  In particular, the taxpayer argued that the application of the Massachusetts use tax discriminated against purchasers of vehicles engaged in interstate commerce, because the tax was not fairly apportioned.  The Board held that there was no need for the use tax to be apportioned, because the Massachusetts use tax scheme prevented double-taxation by allowing a credit against the use tax for sales tax paid to other state on the vehicles.

The one bright side for the taxpayer was that the Board held that the penalties assessed against the taxpayer should be waived, because the taxpayer had relied on a 1980 letter ruling issued by the Department, which provided an exemption from use tax for certain purchases of vehicles purchased outside of Massachusetts that entered the Commonwealth for the first time while engaged in interstate commerce.  The Board noted that the letter ruling was based on regulations that ceased to be in effect in 1996, but held that the taxpayer’s reliance on the ruling was reasonable because it continued to be published by the Department.

The taxpayer in Regency Transportation was headquartered in Massachusetts and had a substantial presence in the Commonwealth, with a large portion of its fleet of vehicles being stored or serviced at the taxpayer’s Massachusetts terminal.  However, the Board’s holding has implications for all interstate trucking companies that use or store vehicles in Massachusetts.  Because a majority of states provide a sales tax exemption for vehicles engaged in interstate commerce, many vehicles in the fleets of interstate trucking companies have never been subject to sales or use tax in any state.  If one of these untaxed vehicles were to enter Massachusetts, based on the holding in Regency Transportation, Massachusetts could impose use tax on the vehicle.  We have heard that the Department is raising this issue in audits of out-of-state trucking companies.

The taxpayer in Regency Transportation is expected to appeal.  A copy of the Appellate Tax Board’s decision can be accessed here: Regency Transportation v. Commissioner.