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. This case, first argued before the Massachusetts Appellate Tax Board and then, on appeal, before the Massachusetts Supreme Judicial Court (decision pending), struck an immediate chord in the news media and in no time at all had resurrected old tales (very tall ones at that) of the days when revenuers from Massachusetts supposedly prowled the state line looking for state residents returning with their trunks stuffed full of tax-free goods purchased in the Granite State. (There are no such patrols, by the way.)
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 on vehicles bearing Massachusetts license plates and registrations.
Numerous commentators have weighed in on this one, with most suggesting that Massachusetts is nuts to even contemplate collection of the sales tax in this instance, even though Massachusetts has a use tax law (honored more by individual consumers in the breach rather than the observance) requiring taxpayers to pay use tax on items purchased in a state with no sales tax and brought back to Massachusetts, and a nexus law that establishes the primacy of Massachusetts sales tax law for companies with a physical presence in the Bay State.
In the spirit of providing a little balance in this so far largely one-sided debate, this blog presents the following piece by David E. Brunori, a journalist, author, educator and lawyer who specializes in tax and government issues. Brunori is both Research Professor of Public Policy at George Washington University an a contributing editor of State Tax Notes, where he writes a weekly column, "The Politics of State Taxation." In other words, he is a real tax wonk. Brunori wrote on July 16:
"New Hampshire Governor John Lynch (D) has signed the bill that he thinks will protect his state's retailers from an evil pro-tax empire called Massachusetts. For those unfamiliar with this conflict, people in Massachusetts were surreptitiously crossing the state line to buy tires for their cars tax free. They would drive back to Massachusetts and use those tires as they traveled from the piney western mountains to the seashores of Cape Cod.
"Unbeknownst to everyone, the Massachusetts Department of Revenue was on to that tax avoidance scheme. The department discovered that one of the New Hampshire tire stores — Town Fair Tire — was a chain with stores in Massachusetts. That gave Town Fair Tire nexus in Massachusetts. So the department attempted to collect use tax from Town Fair Tire on sales of tires in New Hampshire to Massachusetts residents.
"Personally, I see nothing wrong with imposing use taxes in this manner … The tire store has branches in Massachusetts. And the tax is owed.
"Lynch and New Hampshire lawmakers are acting like the Massachusetts DOR is crossing the border and kidnapping children. The new law says that New Hampshire retailers don't have to provide sales information to out-of-state tax collectors (read: those from Massachusetts). How is that for interstate cooperation. And where is the Federation of Tax Administrators when you need it? Lynch and his legislative buddies are couching his support in terms of protecting privacy. That's a crock.
"Let's be clear. People in Massachusetts buy tires in New Hampshire to avoid sales taxes. Massachusetts tire purchasers owe use tax — but won't pay it. The sales and use tax law works only if the vendor collects. The vendor in this case is a company over which Massachusetts has jurisdiction. Therefore, Massachusetts has every right to require the vendor to collect the tax. And New Hampshire law is meaningless as long as New Hampshire companies have a physical presence in Massachusetts."