I. Introduction

The purpose of this Technical Information Release (TIR) is to clarify, following the decision of the Massachusetts Supreme Judicial Court (SJC) in Town Fair Tire Centers, Inc. vs. Commissioner of Revenue, 454 Mass. 601 (2009), the scope of the obligation of a registered out of state vendor to collect and remit Massachusetts use tax on the sale of tangible personal property to a Massachusetts resident where the sales transaction takes place entirely outside the Commonwealth. The Town Fair Tire decision considered the application of the use tax law to a particular factual situation. The Court concluded that the evidence presented in this case was insufficient to establish that the tangible personal property was used in Massachusetts. Accordingly, the vendor was not required to collect Massachusetts use tax in that case.

II. Background

General Laws chapter 64I, § 2 imposes an excise, at the rate of five per cent [1], on "the storage, use, or other consumption in the commonwealth of tangible personal property … purchased from any vendor . . . for storage, use, or other consumption within the commonwealth." The use tax established by G.L. c. 64I, together with the sales tax in G.L. c. 64H, are complementary components of a unitary taxing program intended to "reach all transactions, except those expressly exempted, 'in which tangible personal property is sold inside or outside the Commonwealth for . . . use . . . within the Commonwealth.'" Commissioner of Revenue v. J.C. Penney Company, Inc., 431 Mass. 684, 687 (2000), (internal cites omitted). The use tax is thus designed "to prevent the loss of sales tax revenue from out of state purchases," and to protect local merchants from loss of business to merchants in other states with lower or nonexistent sales taxes. Id.

Liability for payment of the use tax generally falls upon the person using such property. G.L. c. 64I, § 3. However, G.L. c. 64I, § 4 imposes upon certain vendors an obligation to collect the use tax. It provides that:

Every vendor engaged in business in the commonwealth and making sales of tangible personal property . . . for . . . use . . . in the commonwealth not exempt under this chapter, shall at the time of making the sales, or, if the . . . use . . . of the tangible personal property . . . is not then taxable hereunder, at the time the . . . use . . .becomes taxable, collect the tax from the purchaser.

Id. Pursuant to this statutory provision, a vendor with a physical presence in Massachusetts is required to collect and remit the Massachusetts use tax on sales of tangible personal property for use in Massachusetts. This obligation is consistent with the constitutional requirements set forth by the United States Supreme Court in Quill Corp. v. North Dakota, 504 U.S. 298, 311.

III. Town Fair Tire Decision

In the Town Fair Tire decision, the SJC considered whether a vendor who sells tangible personal property to a Massachusetts resident is obligated to collect and remit Massachusetts use tax where a Massachusetts resident purchases and takes possession of the merchandise outside the Commonwealth. In rendering its decision, the SJC considered the following facts.

In 2003, the Department of Revenue commenced a sales and use tax audit of Town Fair Tire, a Connecticut corporation engaged in the retail sale and installation of automobile tires. Town Fair Tire operated eighteen of its sixty stores in Massachusetts and three in New Hampshire. The company collected and remitted Massachusetts sales tax on tire sales made at its Massachusetts stores. It did not collect Massachusetts use tax in connection with the sales of tires made at its stores located outside of Massachusetts. During an audit of Town Fair Tire, an examination of the records from Town Fair Tire's three New Hampshire stores identified invoices listing Massachusetts addresses beneath the name of the purchasers and certain purchasers who paid by check provided Massachusetts driver licenses.

Following the sales and use tax audit of Town Fair Tire, the Commissioner of Revenue, concluding that certain automobile tires had been sold at Town Fair Tire's New Hampshire stores to Massachusetts residents and were installed on vehicles registered in Massachusetts, assessed use tax and related penalties against Town Fair Tire for failing to collect the Massachusetts use tax on those sales. Town Fair Tire appealed to the Appellate Tax Board (ATB), which ruled in favor of the Commissioner, finding that the automobile tires at issue were intended for use in Massachusetts. Town Fair Tire appealed the ATB decision and the appeal was transferred to the SJC on its own motion. The SJC reversed the ruling of the ATB, concluding that the use tax provisions do not permit Massachusetts to assess use taxes against a vendor under the circumstances presented.

In reaching its conclusion, the SJC noted that there was no evidence that any of the tires sold in the sales under review were actually stored or used in Massachusetts, and that the board made no such finding. The Court disagreed with the ATB that intent to use the tires in Massachusetts is sufficient to trigger the use tax. It reasoned that a vendor is liable for use tax under G.L. c. 64I, § 4, only if the tires "were actually stored, used or consumed in Massachusetts." It rejected the Commissioner's argument that "compelling circumstantial evidence" that the tires were sold to Massachusetts residents and installed on vehicles registered in Massachusetts leads "to a presumption" that the tires were indeed used in Massachusetts because there is no Massachusetts statutory presumption of use in the Commonwealth where personal property is sold and delivered to a Massachusetts resident outside the Commonwealth, even where the goods purchased out of state may be affixed to property registered in Massachusetts.

IV. Application of the Decision

Absent evidence of actual storage or use in the Commonwealth, the Commissioner will not assess a use tax against an out of state registered vendor on sales to a Massachusetts resident where a Massachusetts resident purchases and takes possession of tangible personal property entirely outside the Commonwealth. The Town Fair Tire facts are distinguishable from the SJC decision in Circuit City Stores, Inc. vs. Commissioner of Revenue, SJC-08888 (2003), where the retail customer purchased a taxable item at a Massachusetts store and later picked up that item at a New Hampshire branch of that chain store. The Circuit Citydecision was not overruled or changed by Town Fair Tire. Where a sale is consummated at a Massachusetts location, the vendor must collect Massachusetts tax unless another exemption applies, even if the item is picked up at an out-of-state location. Moreover, Town Fair Tire does not change the statutory rule that tangible personal property sold for delivery in the Commonwealth is presumed to be sold for storage, use or other consumption in the Commonwealth. G.L. c. 64I, § 8(a). This rule applies whether the vendor itself delivers the property into Massachusetts or arranges delivery of the property into Massachusetts by common carrier or otherwise.

V. Purchaser's Use Tax Obligation

If an out of state vendor has not collected the applicable sales or use tax on the sale of tangible personal property, the purchaser using such property in Massachusetts owes use tax on the storage, use or consumption of tangible personal property in Massachusetts and must file a use tax return with the Commissioner and pay the tax imposed, subject to a credit for sales tax validly due the jurisdiction where the sale took place. G.L. c. 64I, §§ 2, 3. Massachusetts residents must file an Individual Use Tax Return, Form ST-11, and pay the tax due on such purchases on an annual basis. Alternatively, a Massachusetts resident may report and pay his or her use tax liability on Form 1, the Massachusetts Resident Income Tax Return. The Town Fair Tire decision does not exempt purchasers who purchase property elsewhere and bring it into Massachusetts from their use tax filing or payment obligation.

/s/Navjeet K. Bal
Navjeet K. Bal
Commissioner of Revenue

NKB:MTF:lbr

February 11, 2010

TIR 10-2



[1] As of August 1, 2009, the rate of the Massachusetts sales and use taxes was changed form 5 per cent to 6.25 per cent. St. 2009, c. 27, §§ 53, 57, 155.