Revenue Rolls Out of the State
August 26, 2009
Massachusetts’s Department of Revenue was dealt a blow by the Supreme Judicial Court’s ruling against the state’s ability to collect use tax. The case involved whether a New Hampshire-based company needed to collect the use tax on goods presumably used in the Bay State. The case was brought against Town Fair Tire because the presumed place of use was easily verifiable by the car’s registration. The court’s ruling stated:
There is no Massachusetts statutory presumption of use in the Commonwealth, where personal property is sold to a Massachusetts resident outside the Commonwealth, even where the goods purchased out of state may be affixed to property registered in Massachusetts.
The reason for this is that the Revenue Service was suing for $108,947 from this single tire shop. New Hampshire is famous for having no sales tax while Massachusetts has a five percent state rate. This sort of disproportionally in the rate is going to lead to jurisdictional abrogate especially on larger ticket items.
The most well known example of this is for cigarettes. Our own chief economist Patrick Fleenor wrote about cigarette smuggling here and here. Also, staff economist Mark Robyn wrote about Arkansas’s border zone method to attempt to mitigate border shopping here.