439 Mass. 629 | Mass. | 2003
At issue in this tax appeal is whether Circuit City Stores, Inc. (Circuit City), is liable for Massachusetts excise with respect to its sales of its products to customers in stores located in Massachusetts, who subsequently travel to stores in another State to pick up their purchased merchandise. The Appellate Tax Board (board) rejected Circuit City’s challenge to the refusal by the Commissioner of Revenue (commissioner) to abate $172,460 (plus interest and penalties) in “sales/use” tax assessed against it for transactions in which merchandise purchased in Massachusetts was picked up by the customer in New Hampshire, between April 1, 1993, and March 31, 1996. Circuit City argues that the transactions were sales occurring in New Hampshire and, therefore, no tax is due under G. L. c. 64H, § 2, which imposes sales tax on “sales at retail in the commonwealth, by any vendor, of tangible personal property ... at the rate of five percent.” Circuit City contends that the purchases became taxable in Massachusetts, if at all, under the use tax statute, G. L. c. 641, § 2, when the customer brought the purchased items into the Commonwealth for “storage, use or other consumption” and after Circuit City’s involvement with the transaction had ended. We transferred to this court Circuit City’s appeal from the decision of the board that taxes properly were assessed. We conclude that the transactions were taxable under G. L. c. 64H, § 2, and now affirm the board’s decision.
1. The board found the following facts. Circuit City, a Virginia corporation with its principal place of business in Henrico County, Virginia, is a national retailer of electronic equipment. During the relevant tax period, Circuit City operated eighteen retail stores and a distribution center in Massachusetts, as well as a number of stores in New Hampshire, Rhode Island, and Connecticut. As a convenience to its customers (part of an overall philosophy “to wow the customer”), Circuit City offers a sales option that allows a customer to purchase merchandise at one Circuit City store but elect to pick up the merchandise at an alternative store location. Circuit City refers to such transactions as “alternative location sales” and determines the taxability of these sales based on the location where the item is
All Circuit City’s so-called “alternative location sales” transactions are specifically coded in the company’s inventory computer, or distributive process, system (DPS system) to differentiate them from transactions in which purchased merchandise is carried from the cash register by the customer, delivered by Circuit City to a recipient, or picked up by the customer at the pick-up counter of the store where purchased. The DPS system also records other pertinent information, including the store locations where the item is purchased and where it is to be picked up; the name, address, and telephone number of the purchaser; the item purchased, including the brand, model, and sales price of the item; and the imposition of any sales tax due on the item, based on the location where pick up is to occur.
Circuit City’s customer receipt, generated at the time of the purchase and given to the customer, contains information similar to that recorded in the DPS system. Specifically, the customer receipt indicates the store location where the item was purchased and a description of the item, including its brand, model, and sales price. For alternative location sales, the customer receipt also includes the notation “reserved” and the location of the Circuit City store designated for pick up. The “reserved” designation does not mean that a particular item with a particular serial number physically has been set aside for the customer, but, rather, that one less item is available for sale to other customers in the designated store’s inventory.
When the customer arrives at the designated alternative location store, the customer presents the customer receipt to the store’s customer service representative. The pertinent information is entered into the DPS system, and a pick-up ticket is generated in the store’s warehouse. A Circuit City employee then removes an item matching the make and model specified on the pick-up ticket from the warehouse inventory, verifies the item by entering its serial number into an electronic scanner,
The board heard testimony of three Circuit City customers who had entered into alternative location sales. All three witnesses, who had been sequestered during each other’s testimony, testified that they had purchased items (a television, a videocassette recorder, and computer equipment) at a Circuit City store in Massachusetts and, following advice from a Circuit City employee that Massachusetts sales tax could be avoided by picking their purchases up in New Hampshire, elected to do so. According to the testimony of two customers, one Circuit City sales associate drew a map indicating driving directions to the nearest New Hampshire store. All three witnesses stated that the pick up of their respective items in New Hampshire involved simply presenting their customer receipts to claim the merchandise. No additional amounts were charged, and no other transactions transpired at that time.
After conducting a tax audit, the commissioner assessed Circuit City for “sales/use” taxes relating to alternative location sales occurring between April 1, 1993, and March 31, 1996, in which customers purchased merchandise at three different
2. We now consider the merits of this appeal, which involve issues of statutory interpretation and no constitutional claims. As a general rule, a decision of the board will not be disturbed unless unsupported by substantial evidence or based on an error of law. Factual findings of the board ordinarily are final, and the taxpayer has the burden of proving as matter of law its right to an abatement of the tax. See Kennametal, Inc. v. Commissioner of Revenue, 426 Mass. 39, 43 (1997), cert, denied, 523 U.S. 1059 (1998); M & T Charters, Inc. v. Commissioner of Revenue, 404 Mass. 137, 140 (1989).
Only retail sales
Our tax statutes provide no explicit definition of the term “title,” and so we look for guidance to the Uniform Commercial Code (UCC), incorporated into the General Laws as chapter 106. See Associated Testing Lab., Inc. v. Commissioner of Revenue, 429 Mass. 628, 633-634 (1999); Sherman v. Commissioner of Revenue, 24 Mass. App. Ct. 64, 66-67 (1987). See also 830 Code Mass. Regs. § 64H.6.7 (1993) (passage of title for sales tax purposes defined as in UCC). Section 2-401 of the UCC instructs on the concept of title.
The physical retention of the merchandise by Circuit City is not dispositive of “the time and place at which the seller completes his performance with reference to the physical delivery of the goods” under the UCC. G. L. c. 106)'§ 2-401 (2).*
Under common law as well, title may pass although the goods are still in the actual possession of the vendor. See Bristol Mfg. Co. v. Arkwright Mills, 213 Mass. 172, 176-177 (1912). As under the UCC, the inquiry centers, not on physical transfer of the goods, but on whether goods are placed within the actual or constructive possession of another. See Mitchell v. LeClair, 165 Mass. 308, 310-311 (1896) (“Under a contract of sale, when the goods have been . . . appropriated and set apart, the vendor has done that which by the terms of the agreement makes the whole consideration payable; and so long as he remains ready to do whatever else is to be done to give the vendee the benefit of his purchase, he is entitled to receive the agreed price without deduction on account of his retention of his lien upon the property”).
Here, Circuit City performed its obligations with respect to delivery when the sale was entered as an alternative location sale into Circuit City’s DPS system and the purchased merchandise was “reserved” for the customer at the designated location. It was the customer from that point on who assumed responsibility for acquiring physical receipt of the purchased
It is clear that, under the UCC, no title can pass under a contract for sale “prior to their identification to the contract.” G. L. c. 106, § 2-401 (1). This was also true in common law. See G.E. Lothrup Theatres Co. v. Edison Elec. Illuminating Co., 290 Mass. 189, 193 (1935) (“title cannot pass until goods are set apart and appropriated to the contract”). We reject, however, Circuit City’s argument that “identification to the contract” cannot be made in alternative location sales prior to the time that the merchandise is physically removed from inventory and the serial number is scanned in the New Hampshire store.
Based on the principles expressed above, we reject Circuit City’s attempt to portray the alternative location sales at issue as exempt from G. L. c. 64H, § 2, by virtue of falling within one or both of two statutory exclusions. The first, G. L. c. 64H, § 1, specifically excludes from the statutory definition retail sales “in which the only transaction in the commonwealth is the mere execution of the contract of sale in which the tangible personal property sold is not in the commonwealth at the time of such execution.” Although the merchandise was physically located in New Hampshire at the time of its purchase, far more than the “mere execution of the contract of sale” took place in Massachusetts: the buyer and the seller were in Massachusetts at the time of purchase, and, as has been discussed, title to the purchased goods passed there.
The second statutory exclusion claimed by Circuit City is set forth in G. L. c. 64H, § 6 (b), which exempts from the sales tax “[sjales of tangible personal property . . . which the vendor is obligated under the terms of any agreement to deliver (1) to a purchaser outside the commonwealth or to a designee outside the commonwealth of a purchaser outside the commonwealth or (2) to an interstate carrier for delivery to a purchaser outside the commonwealth or to a designee outside the commonwealth of a purchaser outside the commonwealth.” By its plain language, G. L. c. 64H, § 6 (b), applies only to transactions where terms of a sales agreement obligate a vendor to deliver its merchandise to a purchaser (or a purchaser’s designee) who is outside
As a final matter, we reject Circuit City’s claim that the board ignored evidence with respect to the “national scope” of
“It is a settled principle of our taxation jurisprudence that tax statutes are ‘to be construed as imposing taxes with respect to matters of substance and not with respect to mere matters of form.’ Green v. Commissioner of Corps. & Taxation, 364 Mass. 389, 394 (1973), quoting Commissioner of Corps. & Taxation v. Second Nat’l Bank, 308 Mass. 1, 6 (1941).” Commissioner of Revenue v. J.C. Penney Co., 431 Mass. 684, 688 (2000). In construing other terms of our tax statutes, we have “reject[ed] a technical construction . . . that would permit vendors to escape sales and use tax liability by artful drafting.” Commissioner of Revenue v. Jafra Cosmetics, Inc., 433 Mass. 255, 261 (2001). See Clark Franklin Press Corp. v. State Tax Comm’n, supra at 603. The transactions here involved sales to customers who were within the Commonwealth at the time of purchase. Circuit City credited the sales to the Massachusetts stores and the sales representative in the Massachusetts store received a commission on the sale. The sales occurred in Massachusetts and were taxable here.
3. There may remain unresolved matters with respect to Circuit City’s tax liability for the tax period at issue. The board
Any amount of credit owed to Circuit City based on tax payments remitted to the Commonwealth during the tax period at issue is a matter to be determined by the commissioner on the bringing of an application for abatement by Circuit City pursuant to G. L. c. 62C, § 37.
4. The board’s decision is affirmed.
So ordered.
We agree with the board’s determination that “there is nothing in the record to suggest that the customers would be prevented from deciding to pick up the item at the Massachusetts store rather than travel to the alternative location.”
In the absence of any evidence to the contrary, we leave undisturbed the board’s finding that the accounts of the three witnesses of their experiences are representative of the manner in which Circuit City’s alternative location sales option operated in the audited Massachusetts stores. We agree with Circuit City, however, that the record demonstrates neither a corporate policy of tax evasion nor a general sales practice on the part of Circuit City of encouraging customers to engage in tax avoidance. It is the taxability of alternative location sales, however, and not the motive behind the alternative location sales option, that is dispositive of this appeal.
Circuit City was assessed a total of $281,227.87 (including interest and penalties for the periods at issue) for taxes relating to four separate issues: exempt sales; ($12,035); expense items ($1,044); fixed assets ($10,310); and alternative location sales ($172,460). The assessment relating to alternative location sales is the only assessment at issue in this appeal.
The hoard also concluded that the classification of the tax as a “sales/use” tax does not render the assessment void and that the audit methods employed by the commissioner were neither unreliable nor invalid in the circumstances of this appeal. Circuit City does not now challenge these determinations.
A “[s]ale at retail” is a “sale of services or tangible personal property or both for any purpose other than resale in the regular course of business.” G.L. c.64H, § 1.
Title, of course, is not necessarily synonymous with possession. Because we conclude that title passes to the customers in Massachusetts, however, we need not determine when and where “possession” passed for sales tax purposes. As recognized by the board, an argument could be made that, although the customer’s receipt of the merchandise occurred in New Hampshire, they received the right to possess the merchandise in Massachusetts. According to this line of reasoning, Circuit City retained physical possession of the purchased merchandise, but it did so at the direction of the customer and for the customer’s convenience and, therefore, constructive possession passed to the customer in Massachusetts. See Browning-Ferris Indus., Inc. v. State Tax Comm’n, 375 Mass. 326, 330 n.4 (1978); R.J. Reynolds Tobacco Co. v. Boston & Me. R.R., 298 Mass. 152, 155 (1937).
As has been stated, Circuit City acknowledges that use tax could apply when (and if) the purchased merchandise is brought into Massachusetts. See G. L. c. 641, § 2. It is well established that the use tax and the sales tax are complementary components of our tax system, created to “ ‘reach all transactions, except (hose expressly exempted, “in which tangible personal property is sold inside or outside the Commonwealth for storage, use, or other consumption within the Commonwealth.” ’ M & T Charters, Inc. v. Commissioner of Revenue, 404 Mass. 137, 140 (1989), quoting Boston Tow Boat Co. v. State Tax Comm’n, 366 Mass. 474, 477 (1974); Towle v. Commissioner of Revenue, [397 Mass. 599, 604 (1986)]. The use tax was thus designed ‘to prevent the loss of sales tax revenue by out-of-State purchases,’ M & T Charters, Inc. v. Commissioner of Revenue, supra, and to protect local merchants from loss of business to merchants in other States with lower or nonexistent sales taxes.” Commissioner of Revenue v. J.C. Penney Co., 431 Mass. 684, 687 (2000). Circuit City contends, however, that it is the customers themselves who are personally liable to the Commonwealth for use tax on their purchases. Because we conclude that the applicable excise in these circumstances is the sales tax, and not the use tax, we need not address the scope of Circuit City’s obligations under G. L. c. 641, § 4, to collect use tax from its customers, and remit it to the Commonwealth.
Although the passage of title is the material element of a sale for tax purposes, the concept of title is of small significance in determining the rights of the parties under Article 2 of the Uniform Commercial Code (UCC). See 1 W.D. Hawkland, Uniform Commercial Code Series § 2-401:1 (2001). The introductory sentence of § 2-401 of the UCC sets forth a statement of policy that the rights and obligations of parties under the UCC should be determined without dependence on the concept of title. See G. L. c. 106, § 2-401 (“Each provision of this Article with regard to the rights, obligations and remedies of the [parties] applies irrespective of title to the goods except where the provision refers to such title”). See also in this regard other provisions of the UCC governing rights and duties of the buyer and seller in specific situations, e.g., G. L. c. 106, § 2-501 (insurable interest), §§ 2-509 and 2-510 (risk of loss), § 2-709 (right to damages or price), and § 2-722 (right to sue third parties for damages to goods).
In circumstances where “delivery is to be made without moving the goods,” § 2-401 (3) provides that, unless otherwise explicitly agreed: “(a) if the seller is to deliver a document of title, title passes at the time when and the place where he delivers such documents; or (b) if the goods are at the time of contracting already identified and no documents are to be delivered, title passes at the time and place of contracting.”
The commissioner contends that delivery is made in alternative location sales “without moving the goods” and, therefore, according to § 2-401 (3), title passes “at the time and place of contracting” — at the cash register in Massachusetts. This position assumes a broad understanding of the term “delivery” similar to that explained in our discussion under § 2-401 (2), infra at 636. In our view, analysis of the passage of title under the provisions of § 2-401 (2) is more straightforward. See Mechanics Nat’l Bank v. Gaucher, 7 Mass. App. Ct. 143, 147 (1979) (§ 2-401 [2] applies to property requiring
This inference is supported by testimony of a Circuit City district manager, who stated that, after an alternative sales transaction is entered into the DPS system in Massachusetts, a customer’s change of mind with respect to desired merchandise or pick-up location may only be accommodated by voiding the original sale and transacting a new one.
We note that proposed amendments to art. 2 of the Uniform Commercial Code (UCC), submitted to the members of the American Law Institute for discussion at the eightieth annual meeting in May, 2003, leaves § 2-401 (2) substantively unchanged, with the exception of the elimination of “physical” preceding “delivery.” The proposed amendments also suggest changes that
Definitions of the word “delivery” found in Black’s Law Dictionary also favor this approach. That text defines “delivery” as the “giving or yielding possession or control of something to another” and provides that “symbolic delivery” or constructive delivery of the subject matter of a sale may be made by the “actual delivery of an article that represents the item, that renders access to it possible, or that provides evidence of the purchaser’s title to it, such as the key to a warehouse or a bill of lading for goods on shipboard.” Black’s Law Dictionary 440 (7th ed. 1999).
This argument relies, in part, on Circuit City’s assumption of the risk of loss on the purchased merchandise until the time that it is handed over to the customer. Section 2-509 of the UCC, however, bases risk of loss on the physical location of the goods, irrespective of whether title has already passed to the buyer. As a merchant subject to art. 2 of the UCC, Circuit City cannot transfer the risk of loss until the customer’s actual receipt of the goods, even though full payment has been made and the buyer has been notified that the goods are at his disposal. See G. L. c. 106, § 2-509 (3); official comment 3 to § 2-509, 1A U.L.A. 777 (Master ed. 1989).
The district manager testified that, although a store manager has the ability manually to override the DPS system in order to sell the reserved merchandise to a different customer prior to pick up, such action is counter to company policy and would create “a nightmare.”
The UCC defines “[f]ungible” goods as “goods ... of which any unit is, by nature or usage of trade, the equivalent of any other like unit.” G. L. c. 106, § 1-201 (17).
This court is not bound by a preliminary statement that may have been made in a letter sent to Circuit City by the Department of Revenue indicating that the application of a literal reading of G. L. c. 64H, § 6 (b), might exempt the alternative location sales at issue from excise.
This interpretation is in accord with that of the department. See 830 Code Mass. Regs. § 64H.6.7 (1993) (§ 6 [b~\ applies when purchaser of property is outside of Massachusetts at the time the order for the property is placed).
Any similarity of this case to one recently considered by the board in Neiman Marcus Group, Inc. v. Commissioner of Revenue, 26 Mass. App. Tax Bd. Rep. 316 (2001), is superficial only. The facts of that case involved sales by a Massachusetts retail store to customers physically present in Massachusetts, who requested delivery of purchased merchandise to a third-party designee at an out-of-State address. A common carrier conveyed the merchandise from Massachusetts to out-of-State recipients, and the purchaser paid for shipping and handling costs at the time of purchase. The board determined that, because the store was obligated by agreement with the customer to deliver the goods to the designated destination, the sales were not taxable in Massachusetts.
We also do not deal in this opinion with a situation where a Massachusetts store has a branch store located in another State that, at a customer’s request, ships taxable tangible personal property to Massachusetts residents. Nor do we deal with a situation where a customer in Massachusetts purchases merchandise from a Massachusetts store and, at the customer’s request, has it shipped to the customer at an address in another State (e.g., the customer’s vacation home), where it is collected by the customer and returned to Massachusetts.
Appellate decisions from other jurisdictions cited by Circuit City in support of its position that the alternative location sales at issue are not taxable in Massachusetts are instantly distinguishable because the sales in those cases, unlike alternative location sales, involve physical movement of merchandise to another State. See Department of Revenue v. United States Sugar Corp., 388 So. 2d 596, 597 (Fla. Dist. Ct. App. 1980); Bloomingdale Bros., a Div. of Federated Dep’t Stores, Inc. v. Chu, 76 N.Y.2d 218, 222 (1987), citing C.G. Gunther’s Sons v. McGoldrick, 279 N.Y. 148 (1938); Hales Sand & Gravel, Inc. v. Audit Div. of State Tax Comm’n, 842 P.2d 887, 892 (Utah 1992). See also PPG Indus., Inc., Trucking Div. v. Lindley, 1 Ohio St. 3d 212, 213-214 (1982) (at time of sale, trucks already in possession of out-of-State buyer and parties agreed title would pass in Michigan).