Tires, Skis, Sales Tax, and Florida Garbage Mountains

October 14, 2009

The Town Fair Tire company has stores in New Hampshire and Massachusetts. Given that Massachusetts has a 6.25% sales tax (formerly 5%) and New Hampshire has none, Massachusetts residents were and are driving across the state line to buy tires. A few months ago, the Massachusetts Supreme Judicial Court halted an attempt by the state to force the company to collect sales tax on sales made to Massachusetts customers in their New Hampshire stores.

Massachusetts argued that the high proportion of cars with Massachusetts license plates at New Hampshire tire stores alerted them and that charging by the state on the license plate would be easy. Maybe, maybe not, but it’s still wrong. Sales taxes in the United States are collected based on where the seller is located, not where the customer is.

Some people think that rule should change, at least for the Internet. Under that approach, every seller should ascertain where their customer lives (or more nebulously, where the customer will use the product or service), and apply the correct and current tax base and tax rate from among the 8,000+ sales tax jurisdictions in the United States. Massachusetts at least is being consistent in trying to apply this mess of a rule to brick-and-mortar stores.

CPA Lloyd Looram amusingly criticized the idea, in a letter to state tax expert David Brunori (who had penned a column supporting what Massachusetts officials had tried to do):

Should we follow [the] premise to its illogical conclusion, it would require a vendor to secure the residency of each customer before it could charge tax or determine by some unknown manner the exact location of the intended use of the item being purchased. For instance, should I walk into a Sears or WalMart store in my neighborhood in South Florida and purchase a pair of K2 Apache all-mountain skis or a Burton T6 snowboard, is the clerk behind the counter now required to charge the tax imposed in either Colorado or Utah as the logical presumption is that I cannot use either in Florida. Forgetting about my forthcoming ski trip to Austria, it is “likely” that I might use them in one of those two jurisdictions. Clearly, there are no mountains in Florida and it does not snow except for possibly one day in a year in an obscure corner of the Panhandle. The only hills in the state can be found intermittently by the side of the Florida Turnpike and are comprised exclusively of garbage.

By the way, may I inquire as to whether the Commonwealth’s auditor offered to refund the Massachusetts sales tax paid by residents of other jurisdictions on their purchases of tires at one of Town Fair’s 18 Massachusetts store locations[?…] Such should have occurred if they followed Brunori directive.

Well said, sir.


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A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.

A tax audit is when the Internal Revenue Service (IRS) conducts a formal investigation of financial information to verify an individual or corporation has accurately reported and paid their taxes. Selection can be at random, or due to unusual deductions or income reported on a tax return.

The tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates.

A sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding.