Massachusetts Sales Tax Collected in NH?

[Pat McCotter]

Court rules Mass. can't collect in N.H.
Nashua tire store off Bay State hook

By JAY LINDSAY The Associated Press
August 26, 2009

The state's [Massachusetts] highest court ruled yesterday that Massachusetts can't collect taxes from a retail chain that sells tires to Massachusetts residents in New Hampshire, a longtime sales tax haven for Bay State shoppers.

Massachusetts officials said their case against Town Fair Tire Centers was narrowly focused, but others worried if the state won the case customers all over the region would pay more for cross-border shopping. The case prompted New Hampshire lawmakers to pass a law to make it tough for its businesses to collect Massachusetts taxes from Massachusetts customers.

The Massachusetts Supreme Judicial Court ended up avoiding any broad constitutional issues about interstate commerce, instead focusing on state law, which it said didn't allow the state to assume Massachusetts customers at Town Fair Tire's New Hampshire stores were going to use the tires in Massachusetts.

"The Legislature may, of course, enact such a presumption, but in the absence of any such statutory authorization, it is error to rely on a presumption that tires sold to a Massachusetts resident outside the Commonwealth were actually used in the Commonwealth," the court wrote.

In a statement, the Massachusetts Department of Revenue said, 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."
Prior to the ruling, experts such as University of Georgia tax law professor Walter Hellerstein warned it was possible that state residents would not just pay taxes on everything they buy in New Hampshire, but that neighboring higher sales tax states like Connecticut and Rhode Island would try to recover revenues lost when their residents shopped in Massachusetts.

Hellerstein said Tuesday that the case ended with "a whimper, rather than a bang" because the high court was able to avoid any constitutional questions.

"They didn't want to step into kind of a hornet's nest," Hellerstein said. "They don't want a war with New Hampshire, I assume."

Town Fair Tire's attorney David Nagle said the decision is important because of what the court refused to do.

"Here the court drew the line where everybody thought it had been drawn, except the Department of Revenue," Nagle said. "And maybe the department overreached in this instance."

Massachusetts residents pay a 6.25 percent sales tax after an increase this year - they paid 5 percent during the period covered in the suit.

The case centered on Massachusetts' "use" tax, which residents must pay for goods they buy out of state but use in Massachusetts. The idea is to level the playing field between Massachusetts retailers and out of state retailers in tax-free areas. But residents almost never voluntarily pay the tax, and retailers in tax free New Hampshire have little motivation to give up the competitive advantage by collecting it.

In 2003, a Massachusetts auditor searching a sample of records at three Town Fair stores in New Hampshire found 313 invoices which listed a Massachusetts address for the customer.

The Department of Revenue then assessed about $109,000 in uncollected use taxes to Town Fair. The decision was upheld by the state's Appellate Tax Board, and Town Fair appealed to the high court.

The state argued if tires were sold to Massachusetts residents for use on cars that were registered in Massachusetts, that was "compelling circumstantial evidence" that justified a presumption that the tires were actually used in Massachusetts, and the retailer must assess the use tax.

But the SJC said state law does not permit that presumption.

"The (appellate tax) board's conclusion is untenable," the court wrote. "It is not supported by the language of the statute."

Though lawmakers could try to change the law, Nagle said it won't be easy because retailers would have a tough time avoiding privacy issues when they tried to find out where customers were going to use an item.

"It's one thing to have a tax assessed that doesn't depend on anything other than the merchandise you're buying," Nagle said. "It's another to have a retailer asking background questions about where you're from and where you're planning to use property."