In a decision that will provide relief to retailers across the country, the Massachusetts Supreme Judicial Court yesterday reversed the decision of the Massachusetts Appellate Tax Board in Town Fair Tire Centers, Inc. v. Commissioner of Revenue.1 The Appellate Tax Board had held that Town Fair Tire, a tire retailer with stores in several states, including Massachusetts, was required to collect Massachusetts use-tax on tires sold to Massachusetts residents at its New Hampshire stores. Although the Supreme Judicial Court decided the Town Fair Tire case based purely on the language of the Massachusetts use-tax statute, the reversal of the Appellate Tax Board decision should, nonetheless, put a damper on any plans by other states to try to impose use-tax on transactions with no physical connection with the taxing state.
In an audit of Town Fair Tire, the Massachusetts Department of Revenue assessed Massachusetts use-tax on transactions that occurred at Town Fair Tire's New Hampshire stores, if the invoice for the transaction showed a Massachusetts customer address. Town Fair Tire appealed the assessment to the Appellate Tax Board. The Board upheld the assessment, because in the absence of evidence to the contrary, the Board found it proper to presume that the customers who provided Massachusetts addresses intended to store, use or consume the purchased tires in Massachusetts.
The Supreme Judicial Court reversed, noting that the Massachusetts use-tax statute imposed tax "upon the storage use or other consumption in the commonwealth" of tangible personal property that is "purchased ... for storage, use or other consumption within the commonwealth."2 The court interpreted this language as imposing the tax on tangible personal property only if it was actually stored, used or consumed in Massachusetts. Thus, the court concluded that a vendor has no obligation to collect Massachusetts use-tax prior to the storage, use or consumption of the tangible personal property in Massachusetts, unless the legislature created a specific statutory presumption that the sales would result in storage, use, or other consumption in Massachusetts. In the Town Fair Tire case, the fact that customers may have provided a Massachusetts address in connection with the sale was not deemed to be sufficient evidence that the tires would actually be used in Massachusetts.
The Supreme Judicial Court did not find it necessary to address any of the U.S. constitutional arguments raised by Town Fair Tire. However, the court did note that if Massachusetts' use-tax statute included a provision, creating a presumption that property delivered outside of Massachusetts to a Massachusetts resident was purchased for storage, use or consumption in Massachusetts (similar to provisions in the use-tax statutes of California, Nevada and Wisconsin), the result in the Town Fair Tire case might have been different. Thus, it is possible that Massachusetts may try to snatch a victory from the jaws of defeat by amending its use-tax statute to create just such a presumption. Nonetheless, at least for now, Town Fair Tire's victory should cause states other than Massachusetts to think twice before taking a similar, aggressive, position on use-tax collection.