Regency Transportation, Inc.
Commissioner of Revenue
Argued November 5, 2015.
Appeal from a decision of the Appellate Tax Board.
The Supreme Judicial Court granted an application for direct appellate review.
Matthew A. Morris ( Richard L. Jones with him) for the taxpayer.
Marikae G. Toye ( Joseph J. Tierney with her) for the Commissioner of Revenue.
Elizabeth J. Atkinson, of Virginia, & Andrew J. Fay & Patrick E. McDonough, for Massachusetts Motor Transportation Association & others, amici curiae, submitted a brief.
Present: Gants, C.J., Spina, Cordy, Botsford, Duffly, Lenk, & Hines, JJ.
[42 N.E.3d 1135] Cordy, J.
Regency Transportation, Inc. (Regency), appeals from a decision of the Appellate Tax Board affirming in part the denial of an abatement of the motor vehicle use tax assessed against it under G. L. c. 64I, § 2. We granted Regency's application for direct appellate review to decide whether an unapportioned use tax imposed on Regency's interstate fleet of vehicles violates the commerce clause of the United States Constitution.
For the reasons discussed herein, we conclude it does not.
The essential facts are not disputed. Regency is a
Massachusetts S corporation that operates a freight business with terminals in
Massachusetts and New Jersey. Regency is licensed by the Interstate Commerce
Commission as an interstate carrier to operate a fleet of tractors and trailers.
The Regency fleet carries and delivers goods throughout the eastern United
Throughout the tax periods at issue, Regency maintained its corporate headquarters in Massachusetts, as well as four warehouses and a combined maintenance facility and terminal location which it used for repairing and storing vehicles in its fleet. Regency also operated five warehouses in New Jersey and two combined maintenance facility and terminal locations there. Regency performed thirty-five per cent of the maintenance and repair work [42 N.E.3d 1136] on its fleet at its Massachusetts locations and thirty-five per cent of the work at its New Jersey locations, with the remainder being performed by third parties. All vehicles in the Regency fleet entered into Massachusetts at some point during the tax periods at issue, and during these same periods Regency employed between sixty-three and eighty-three per cent of its workforce in the Commonwealth.
Regency purchased the vehicles in its fleet from vendors in New Hampshire, New Jersey, Indiana, and Pennsylvania and accepted delivery and possession outside the Commonwealth. The vehicles were registered in New Jersey and bore New Jersey registration plates. Regency did not pay sales or use tax to any jurisdiction on its purchases of the vehicles because New Hampshire does not impose a sales tax and the remaining States provide an exemption for vehicles engaged in interstate commerce, known as a " rolling stock exemption." The majority of States provides such an exemption from sales and use tax; Massachusetts does not, having abolished its rolling stock exemption in 1996.
In August, 2010, the Commissioner of Revenue (commissioner) issued a notice of assessment to Regency pursuant to an audit of its sales and use tax liabilities for the monthly tax periods beginning October 1, 2002, and ending January 31, 2008. The commissioner imposed a use tax on the full purchase price of each tractor and trailer in Regency's fleet, totaling $1,472,258.22, in-
cluding $298,286.61 in interest and $391,323.95 in penalties for failure to file use tax returns and failure to pay use tax. Regency requested full abatement of the assessment, which the commissioner denied in November, 2010. Regency timely appealed to the Appellate Tax Board (board) in January, 2011.
In its appeal, Regency argued that the Commonwealth's imposition of a use tax on vehicles engaged in interstate commerce violated the commerce clause of the United States Constitution and the equal protection clauses of the United States and Massachusetts Constitutions. Regency also argued that its reliance on a " letter ruling" issued by the Department of Revenue (department) under prior law constituted reasonable cause for the commissioner to abate the penalties assessed for failure to file returns and pay the tax.
The board rejected Regency's arguments as to the commerce and equal protection clauses and concluded that Regency was liable for the Massachusetts use tax on the full sales price of its vehicles that were either stored or used in the Commonwealth. It ruled that the tax was permissible under the commerce clause and administered in a manner consistent with the equal protection clauses of the United States and Massachusetts Constitutions. The board noted that " while the fact that Massachusetts imposes a use tax on the use of interstate vehicles in the Commonwealth when many [S]tates do not may increase costs for taxpayers who use vehicles here, this difference is not unconstitutional discrimination because Massachusetts allows a credit for any taxes paid to other jurisdictions."
The board, however, abated the penalties imposed after finding that the commissioner's continued publication of incorrect guidance created uncertainty constituting reasonable cause for Regency's failure to file use tax returns and pay use tax. Regency timely appealed the board's decision, and petitioned this court for direct appellate review, which we granted. On appeal to this court, Regency challenges only the board's determination that the motor vehicle use tax does not violate the commerce clause.
[42 N.E.3d 1137] 2. General Laws c. 64I, § 2.
General Laws c. 64I, § 2, imposes a tax on the " storage, use or other consumption in the commonwealth of tangible personal property." " The use tax was designed to prevent the loss of sales tax revenue from out-of-State purchases." M & T Charters, Inc.v.Commissioner of Revenue, 404 Mass. 137, 140, 533 N.E.2d 1359 (1989). The use tax and the sales tax ...