Hard times breed harebrained schemes. This is especially true, whether one speaks of individuals, businesses, or governments, when it comes to money. As the economy continues to shrink, elected officials continue to devise ever more imaginative rackets to siphon money from the shrinking economy.
Washington, D.C. Mayor Adrian Fenty proposes a $51-a-year "streetlight user fee." A state legislator in Oregon, home to such macro microbrews as Rogues Ales and Widmer, wants to tag a $50 tax on every full barrel of beer produced in, or imported to, his state. Empire State assemblyman Felix Ortiz, perhaps the nation’s most prolific author of vice taxes, has a litany of bills before the New York state legislature imposing a $10 tax on visitors to strip clubs, a 25¢-cent tax on bottles of beer and wine, and a fatso tax on soda, sweets, and video games.
The tax schemes leave observers amazed both at the ingenuity behind them and at the idiocy in their counterproductive, killing-the-goose-that-lays-the-golden-egg mentality that primarily targets commerce. The money grab that beats all others in its outside-the-box thinking is the demand by Massachusetts that out-of-state stores collect sales taxes for the Bay State.
Last week, Massachusetts' Supreme Judicial Court heard arguments in Town Fair Tire v. Massachusetts. In the coming months, the Supreme Judicial Court will decide the issue at hand: whether Massachusetts has the right to force businesses in New Hampshire to collect Bay State sales taxes when selling items to Massachusetts residents. Given the recent vote in the Massachusetts House of Representatives to increase sales taxes by 25 percent, the impulse to dam the flood of Massachusetts shoppers into sales-tax-free New Hampshire grows stronger among Bay State officials perpetually frustrated with potential tax dollars flowing north across the border.
Town Fair Tire v. Massachusetts revolves around a tax bill presented to three New Hampshire Town Fair Tire (TFT) stores by the Massachusetts Department of Revenue. The bill stems from a Massachusetts audit of the New Hampshire stores covering the period of October 2000 to April 2003. The Bay State estimated that it lost revenue justly owed to it due to more than 300 border-crossing shoppers, and demanded that TFT -- which has numerous stores in Massachusetts as well -- pony up $108,947 in taxes, interest, and penalties.
TFT's invoices revealed customers listing Massachusetts addresses. "Based upon the evidence, and in the absence of evidence to the contrary, the [Tax] Board inferred that the vehicles owned or operated by Massachusetts residents also bore Massachusetts registration plates ('license plates') and certificates of inspection ('inspection stickers'), which provided additional evidence to TFT of the intended place of use of the tires," the state's appellate tax board judged. Massachusetts assumed that the addresses on the invoices were connected to cars with Massachusetts plates and inspection stickers, the presumed sight of which should have prompted tire technicians to alert clerks to assess a 5 percent tax upon the sale. But New Hampshire sales clerks don't even collect sales taxes for their own state's government. Could their southern neighbors really have expected them to collect sales taxes for Massachusetts?
Massachusetts' appellate tax board ruled that TFT’s stores just over the New Hampshire border should have collected sales taxes for Massachusetts because "TFT benefitted from the many services provided by the Commonwealth, including fire and police protection, road maintenance and other municipal services by virtue of its retail operations in the Commonwealth." But the "retail operations" that benefitted from such services collect and remit Massachusetts sales taxes. The case is about the practices of three Town Fair Tire stores in New Hampshire, not the twenty-five TFT locations in Massachusetts.
The "use tax" law Massachusetts cites is more than forty years old and has never been interpreted in this manner before. The onus has been on Massachusetts taxpayers, rather than out-of-state merchants, to remit the "use" tax. New Hampshire vendors, then, could not have foreseen the new interpretation of this old law. This is doubly the case given that the tires purchased in the Granite State would not be "used" in the Bay State (if at all) until after the transaction. Aside from all this, there is the Orwellian description of a tax collected at the point of sale as a "use tax." One can call a tax collected during a trade of money for goods a "use" tax. But it's still a sales tax.
Whatever one calls it, the cross-jurisdictional tax blatantly violates the U.S. Constitution. Through its commerce clause, that document ensured a massive free-trade zone that has for more than two centuries prevented interstate trade wars of the sort that Massachusetts has launched. Massachusetts, in a greedy grab for more dollars, has imperiled a key component of American prosperity.
New Hampshire has responded through a bill that forbids its businesses to share customer information with other states. The state senate passed it unanimously, a house committee unanimously referred the bill to the larger body for consideration next week, and the governor supports the measure. "I am greatly disturbed that Massachusetts has ordered a retail store in New Hampshire to collect and remit an out-of-state use tax on certain over-the-counter sales at the store's New Hampshire locations," New Hampshire Governor John Lynch explains. "We should not allow Massachusetts to turn New Hampshire businesses into tax agents for Massachusetts."
If the case seems too preposterous to pass legal muster, consider that the muster it must pass is that of the Massachusetts Supreme Judicial Court. The same body that five years ago divined a right to gay marriage in the oldest constitution in the world now considers whether to read the commerce clause out of the U.S. Constitution. The Massachusetts Supreme Judicial Court's willingness to do the former suggests that it is quite capable of doing the latter.