Technical Information Release  TIR 20-11: Jordan’s Furniture, Inc. v. Commissioner of Revenue – Sales Tax Holiday

Date:	08/28/2020
Referenced Sources:	Massachusetts General Laws

I. Introduction

On June 26, 2020, the Massachusetts Appeals Court upheld the decision of the Appellate Tax Board in favor of the taxpayer in Jordan’s Furniture, Inc. v. Commissioner of Revenue, 97 Mass. App. Ct. 1126 (Memorandum and Order Pursuant to Rule 1:28) (“Jordan’s”).[1] The Commissioner had assessed sales and use taxes against taxpayer Jordan’s Furniture, Inc. (“Taxpayer”), a Massachusetts furniture retailer, in connection with sales orders that were rewritten to take advantage of the Massachusetts Sales Tax Holiday Weekend (the “Sales Tax Holiday” or “Holiday”).[2]  This Technical Information Release (“TIR”) explains that, due to a change in the Sales Tax Holiday statute, this decision will not impact the taxability of sales made in connection with future Sales Tax Holidays.

II. Discussion

       A. The Prior Law and the Appeals Court’s Decision

The Massachusetts legislature first passed a statute declaring a one-time Sales Tax Holiday in 2004.  The legislature continued to provide for one-time Holidays each year through 2015, with the exception of 2009. 

At issue in Jordan’s were transactions completed in 2010, 2011, and 2012.  Under the law during these years, to qualify for Sales Tax Holiday treatment customers either needed to take possession of the property during the Holiday, or to pay for the property in full during the Holiday.  Further, the statutes explicitly excluded “prior sales” from eligibility. 

With respect to the transactions at issue in Jordan’s, the Taxpayer utilized software allowing it to cancel the orders of customers who had placed and paid for an order in the weeks preceding the Holiday, but had not yet taken delivery of their furniture.  The software would then rewrite the orders during the Holiday to make the sales eligible for the exemption.  All of this was done generally without the customer contacting or patronizing the Taxpayer during the Holiday.  Jordan’s at *4-*5.

The Appeals Court held that this arrangement complied with the Sales Tax Holiday statutes in effect during these years.  The Court found that payment in full occurred during the Holiday because the Taxpayer’s software applied a credit (from the payment toward the customer’s prior order) to the customer’s new order during the Holiday.  Jordan’s at *9-*10.  Further, the Court found that the transactions at issue were not prior sales, but rather prior orders subject to cancellation at any time prior to delivery.  Id. at *7-*8.

As a result of these findings, the Appeals Court determined that the Taxpayer’s use of software to rewrite prior orders was a reasonable way for it to comply with the Sales Tax Holiday legislation applicable in 2010, 2011, and 2012.  Id. at *10.  However, as discussed below, the Sales Tax Holiday statute now explicitly makes such transactions ineligible for the exemption for all Sales Tax Holidays going forward. 

      B. The Current Statute Supersedes the Jordan’s Decision

In 2018, the legislature enacted a statute providing for an annual Sales Tax Holiday, to occur on a weekend in August each year.  St. 2018, c. 121, § 4; amended further by St, 2018, c. 273, §§ 39-41, 72.  This new statute, G.L. c. 64H, § 6A, added new requirements for a sale to be eligible for the exemption.  Pursuant to the statute:

Eligible sales at retail of tangible personal property pursuant to this section shall be restricted to those transactions occurring on a designated day. Transfer of possession of or original payment in full for the property shall occur on a designated day. The following transactions shall be ineligible for the purposes of this section: (i) transactions where a deposit, prepayment or binding promise to pay is made before the designated days; (ii) prior sales; and (iii) layaway sales.  G.L. c. 64H, § 6A(c).  (Emphasis added.) 

The Commissioner has also promulgated a regulation regarding the annual Sales Tax Holiday, 830 CMR 64H.1.8.  Regarding transactions occurring prior to the Holiday, the regulation provides that:

A sale of tangible personal property is eligible for the sales tax holiday exemption only if transfer of possession of or original payment in full for the property occurs on one of the designated days of the sales tax holiday. Any transaction where a purchaser places an order and makes a deposit, prepayment or other binding promise to pay for an item of tangible personal property prior to the sales tax holiday is not eligible for the sales tax holiday exemption. A vendor may not rebook a prior sale that has taken place before the sales tax holiday, either manually or by use of software, in order to cause the prior sale to be eligible for the sales tax holiday exemption.  830 CMR 64H.1.8(5)(a).  (Emphasis added.)

Under the language of the current statute and regulation, transactions such as those in Jordan’s, in which a vendor accepts payment prior to the Sales Tax Holiday, are now ineligible for the Sales Tax Holiday exemption.  The Taxpayer’s practice of accepting payment for an item before the Holiday and then rewriting the sale during the Holiday would make the sale ineligible for the sales tax exemption.  The legislative change supersedes the Jordan’s holding with respect to Sales Tax Holidays going forward. 

III. Conclusion

Under prior law as construed by Jordan’s, the Taxpayer’s practice of accepting payment before the Holiday and rewriting the sale during the Holiday made the sale eligible for the exemption.  However, due to a legislative change, under current law a sale completed under such practice is ineligible for the Sales Tax Holiday exemption.  For purposes of the Sales Tax Holiday held in 2020 and for future Holidays, a sale is ineligible for the sales tax holiday exemption if a deposit, prepayment, or binding promise to pay is made before the Holiday. See 830 CMR 64H.1.8(5).

 

                                                                              /s/Geoffrey E. Snyder
                                                                             Geoffrey E. Snyder
                                                                             Commissioner of Revenue

 

GES:RHF:mc

August 28, 2020

TIR 20-11

[1] Decisions issued pursuant to Appeals Court Rule 1:28 “are primarily addressed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, rule 1:28 decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case.”  Chace v. Curran, 71 Mass. App. Ct. 258, 260 n.4 (2008).  As a result, a decision pursuant to Rule 1:28 “may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent.”  Id.

[2] The Massachusetts Sales Tax Holiday (originally provided for by the legislature in 2004 and made permanent in 2018) is an annual two-day weekend taking place in August during which non-business sales at retail of items of tangible personal property costing $2,500 or less are exempt from Massachusetts sales and use taxes.