Taxing Times
Last week, the state Supreme Judicial Court ruled that the state Department of Revenue can’t make Massachusetts residents pay sales or use tax on tires bought in sales tax-free New Hampshire.
We hope the SJC doesn’t let another, potentially even more damaging DOR money grab get even that far. DOR has asked the SJC to review a case in which it argues that manufacturing companies are not entitled to the state’s sales and use tax exemption until they are actually manufacturing finished product.
This is a shortsighted to say the least. Under DOR’s thinking, a high-tech start-up company of the sort the state would like to attract would not qualify for the exemption at a most critical stage. It would be, as the state Appellate Tax Board ruled, “in a highly disadvantageous tax position.”
The Appellate Tax Board has already sided with Onex Communications, a Bedford company from which DOR tried to wrest nearly $140,000 for not paying sales and use taxes on equipment it bought for the research and development of the products it now manufactures.
In its brief asking the SJC to consider the case, DOR tries to come across as the common sense party in the matter. But its argument that it’s too difficult to determine whether a company may actually one day manufacture something or if it’s just the elaborate daydream of some mad scientist rings hollow.
The department’s primary function is to audit taxpayers, and despite the fact that these audits can take months or even years, as was the case for Onex, DOR claims its auditors can’t determine which companies are using the manufacturers exemption to sales and use taxes for its intended purpose.
Yet, DOR managed to determine that Massachusetts residents had avoided more than $108,000 in sales and use taxes by purchasing tires at Town Fair Tire in New Hampshire.
It seems the DOR will go to great lengths to track down what it considers unpaid taxes. But when its argument is that manufacturers that should be exempt must pay sales and use tax because auditors can’t put the same muscle into determining who gets a break as they do into who’s cheating the system, the argument deserves to be disregarded.
Innovation may yet patch Massachusetts’ threadbare economy, but when DOR is willing to sacrifice that potential in order to scrape a few dollars into the state’s revenue column, it jeopardizes any effort made to attract innovative enterprise to the state.
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