Rare is the circumstance where a state taxing authority feels compelled to blog about a nexus case. In its July 23, 2009 post entitled "Another Point of View on Town Fair Tire", the Massachusetts Department of Revenue (DOR) blogged:
"To say there has been more heat than light generated in the ongoing news coverage of the Town Fair Tire sales tax case would be an understatement ... In truth, the Town Fair Tire dispute is a narrow case testing whether Massachusetts has the right to compel the tire company, which also has stores in Massachusetts and is thus subject to Massachusetts rules, regulations and laws, to collect sales tax on tires installed [in New Hampshire] on vehicles bearing Massachusetts license plates and registrations."
If this case is so narrow, why would the DOR focus its resource-constrained efforts on a case with a liability of approximately $108,000 on the original assessment that included tax, interest and penalties? The Boston Globe dubbed the case "Taxachusetts" versus the "‘Live Free or Die’ pride of New Hampshire." Kevin W. Brown, general counsel of the Massachusetts DOR, was quoted in this same news article as saying the case attempts to address a difficult and protracted problem that seeks to protect Massachusetts retailers. According to the story, some economists have estimated this to be somewhere between a $130m and $410m annual problem for Massachusetts.
Retailer had no duty to collect Massachusetts sales tax for out-of-state purchases by Massachusetts residents
In Town Fair Tire Centers, Inc. v. Commissioner of Revenue, SJC-10360, 8/25/2009, the Supreme Judicial Court of Massachusetts held that a store located in New Hampshire did not have to collect Massachusetts sales tax from customers who bought goods in New Hampshire but had a Massachusetts address, driver’s license or telephone number. The Court interpreted the relevant Massachusetts statute, G. L. c. 64I, §4, to impose sales tax liability only once the property was actually stored, used or consumed in Massachusetts. Since the customers who bought tires in New Hampshire did not use them in Massachusetts before leaving the store, the store had no obligation to collect Massachusetts sales tax. The Court held that the Commissioner may not presume that Massachusetts customers would use the tires in Massachusetts, because the sales tax statute does not explicitly allow such a presumption.
The decision rests on statutory interpretation and not on constitutional grounds, and the Court emphasized that the Massachusetts Legislature could amend the statute to impose a sales tax in similar circumstances in the future. In fact, the Court pointed out that several other states already impose sales tax in cases when the vendor knows that the purchaser is a resident of the taxing state. Given the current budget shortfalls, we may see Massachusetts and other states enact similar statutes to force out-of-state vendors to collect sales tax on purchases by in-state residents.
New Hampshire’s Response
New Hampshire Governor John Lynch proposed legislation to protect New Hampshire’s businesses from having to collect sales taxes on behalf of Massachusetts. From the release announcing his proposed legislation, Governor Lynch said, "We have chosen not to have a sales tax here in New Hampshire, and we are not about to let Massachusetts – or any state – impose its sales tax on our businesses for items purchased in New Hampshire stores." The final version of the legislation proposed by Governor Lynch that took effect in July of 2009 provided that business owners cannot be compelled to disclose private customer information and that unless the consumer gives information on his own, there is a "presumption" that New Hampshire is where the purchased goods will be used.