Massachusetts High Court to Hear Appeal Involving Application of Use Taxes
The highest court in Massachusetts has agreed to hear a tax case on buying trucks — perhaps as early as October — that could increase tax liability for motor carriers.
Regency Transportation Inc., a regional truckload carrier, is appealing a unanimous ruling of the commonwealth’s five-member Appellate Tax Board that found the Franklin, Massachusetts-based firm must pay $1.17 million in use taxes and interest related to the purchase of trucks from 2002 to 2008 in nearby states.
Use taxes in secondary states are supplements to sales-tax payments made to states that are home to initial purchases.
“There are important constitutional issues at stake here,” Regency attorney Matthew Morris said. “The Department of Revenue says this is a very narrow case, limited to Regency and similar companies . . . but this could affect any carrier with trucks on Massachusetts’ roads and make for higher shipping costs.”
“The association is putting all its resources behind the resolution of this matter relative to retroactive taxation of commercial vehicles, both in the courts and in the legislature,” said Anne Lynch, executive director of the Massachusetts Motor Transportation Association.
“This effort would have a devastating and fatal result to many companies transporting goods in Massachusetts,” Lynch said. “This should sound an alarm to the industry on heinous tax policy perpetrated against the primary source of all transportation of goods for consumers.”
Department of Revenue spokeswoman Maryann Merigan said the department does not comment on pending litigation.
Regency runs in New England and the Northeast and has a very heavy presence in its home state of Massachusetts and in New Jersey. Massachusetts levies a 6.25% sales tax on vehicle purchases, whereas New Jersey grants an exemption to trucks involved in interstate commerce.
The discrepancy led Regency to purchase its trucks outside of Massachusetts and then register them in New Jersey as a base state under the terms of the International Registration Plan, Morris said.
IRP is also a U.S.-Canadian organization that apportions annual registration fees among states and provinces based on where trucks travel.
In Massachusetts and other states, a use tax comes into play to collect taxes from in-state firms that make out-of-state purchases.
In a filing with the seven-member Massachusetts Supreme Judicial Court, the Department of Revenue said it collects use taxes in accordance with the 1977 U.S. Supreme Court decision Complete Auto Transit v. Brady. The DOR brief said its collection meets all four parts of the test mandated by the court in that decision.
Most important, DOR said, is that sales tax paid to another state results in a credit against the Massachusetts use tax. DOR compared Regency with an earlier tax defendant.
“After conducting a Complete Auto analysis, [the Massachusetts Supreme Judicial Court] concluded that there was ‘no constitutional impediment to the assessment of the use tax in these circumstances,’ noting that the taxpayer sought to ‘use the commerce clause of the United States Constitution not as a protection against multiple or discriminatory taxation, but as an escape from any taxation at all,’ ” DOR said of Regency’s argument.
American Trucking Associations found that Massachusetts’ use tax is atypical. Thirty-seven states offer a sales-tax exemption for rolling stock purchased by for-hire interstate motor carriers, an ATA briefing paper said.
Morris said it is particularly unreasonable for Massachusetts to collect 100% of its use tax, considering the way Regency operates. Based on the carrier’s IRP and fuel-tax reports, Regency’s miles in Massachusetts are about 35% of the company’s total.
He said oral arguments in the case probably will be heard in November, but the justices could move up the hearing to October depending on the court’s calendar.
Regency already has won some relief on its 2010 tax bill of $1.47 million. Last December, the Appellate Tax Board waived DOR’s demand for more than $391,300 in penalties from Regency.
The board said DOR’s guidance and tax preparation materials were so confusing and outdated that “the uncertainty resulting from its continued publication [of outdated guidance] did serve as a reasonable cause for the appellant’s failure to file use tax returns or pay the tax.”
The board, however, did affirm Regency’s obligation to pay taxes and interest. The carrier is asking the Supreme Judicial Court to overturn that part of the board’s ruling.
The court agreed to hear Regency’s appeal directly from the board, bypassing the usual hearing before a Massachusetts appellate court.
