State Tax vs. Commerce Clause in Massachusetts

The Boston Globe reports this morning that a case before the Massachusetts Supreme Judicial Court will test whether the state can pursue sales tax on large appliance and tires sold to Massachusetts residence who cross the border into nearby states like New Hampshire to avoid state sales tax. The Council on State Taxation, a not for profit organization representing corporations with multi-state and international operations, is very interested and may file friend of court briefs. b

Town Fair Tire Centers is incorporated in Connecticut, but has 25 stores in Massachusetts. It has six stores in New Hampshire. In 2003, Massachusetts investigated and found more than 300 Massachusetts residents had recently bought tires in New Hampshire Town Fair Tire Centers, presumably in order to evade Massachusetts state sales tax. Based on that audit, the state assessed Town Fair Tire more than $100,000 in use tax (a 5% tax on items to be used or stored in the state of Massachusetts) that should have been collected on behalf of the state, arguing that Town Fair knew or should have known that they were selling tires to Massachusetts residents. New Hampshire merchants who sell to Massachusetts residents over the internet are required to collect a sales tax. And if a Massachusetts resident orders items at a multi-state chain store for pick-up in New Hampshire, they must still pay sales tax, per a decision in the 1990's against Circuit City, the recently bankrupt electronics chain.

The state has ordered Town Fair Tire Centers to charge Massachusetts residents state tax, even when they buy tires from one of the New Hampshire stores. Town Fair has filed suit, arguing that the order violates the Commerce Clause of the federal constitution. The suit will be heard next month in the Supreme Judicial Court. The outcome will have huge ramifications for stores like Sears, BestBuy and others, with multi-state stores. I imagine that other states will be watching as well as state residents who like to save the sales tax by crossing the border. Massachusetts is facing a huge budget deficit and is looking hard for ways to close that gap. Meanwhile, residents also face their own budget deficits and are looking equally creatively for ways to make their money go farther. This will be a hotly contested and much-watched argument.

Those interested can watch the oral arguments in the case by clicking on the Supreme Judicial Court link above. You have a choice to watch live or an archived version. Briefs have to be gotten through Westlaw now.