Friday, February 6, 2009
Last November, I blogged John A. Swain (Arizona) & Walter Hellerstein (Georgia), Town Fair Tire and the Silliness of the Physical Presence Rule for Use Tax Collection Nexus, 50 State Tax Notes 447 (Nov. 17, 2008). The Massachusetts Supreme Judicial Court has taken the Town Fair Tire case on its own motion and has solicited amicus briefs, which should be filed by March 23:
Whether the Commissioner may collect use taxes, pursuant to G. L. c. 64I, § 4, on tires sold in New Hampshire to identified customers from Massachusetts by a Connecticut vendor engaged in business in New Hampshire and in the Commonwealth; and whether the taxation scheme violates the commerce clause by taxing commercial transactions occurring outside Massachusetts: whether there is sufficient nexus between the sales and Massachusetts.
See also the front-page article in the Boston Globe, State Chases Sales Taxes in N.H.; Targets Mass. Tire Purchasers:
Massachusetts has ordered a tire chain to charge Bay State residents a 5 percent sales tax on their purchases in New Hampshire in an unprecedented move that could have huge implications for consumers and other merchants. ...
Kevin W. Brown, general counsel of the Massachusetts Department of Revenue, said the case attempts to address a difficult and protracted problem. Currently, New Hampshire merchants who also have shops in Massachusetts are required to collect taxes on items that are bought by Bay State residents over the Internet and via catalogs and mailed to their homes.
In the 1990s, a similar lawsuit involving Circuit City determined that the Commonwealth could require the electronics chain to charge taxes on merchandise ordered in Massachusetts but picked up in the Granite State. But there have been no court cases in Massachusetts involving purchases made entirely out of state.
Until now, consumers have been solely responsible for paying use taxes for eligible purchases initiated and completed in New Hampshire when filing their state tax returns. This isn't an issue in other border states, like Connecticut and Rhode Island, because they charge sales tax and there is less incentive for Bay State consumers to cross the border.
But many Massachusetts residents don't file use taxes, tax authorities say, and individual violators are nearly impossible to detect. The invoices and receipts kept by retailers, however, have made it possible for the state to track down the customers' plans to use their merchandise in the Commonwealth, according to Brown.
"The use tax is designed to take away an incentive for the buyer to go out of state and not pay the taxes," Brown said. "That's why we need to be enforcing the use tax because it protects local vendors." Brown said he did not have figures for how much Massachusetts loses in sales taxes because of purchases made in New Hampshire. But several economists estimate losses to be anywhere from $130 million to $410 million annually.