Circuit City Stores, Inc. v. Commissioner of Revenue
| Decision Date | 25 June 2003 |
| Docket Number | SJC-08888. |
| Citation | 439 Mass. 629 |
| Parties | CIRCUIT CITY STORES, INC. vs. COMMISSIONER OF REVENUE. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Taxation, Appellate Tax Board: findings; Sales and use tax; Excise. Uniform Commercial Code, Sale of goods, Title. Statute, Construction.
Appeal from a decision of the Appellate Tax Board.
The Supreme Judicial Court on its own initiative transferred the case from the Appeals Court.
William E. Halmkin (David J. Nagle with him) for the taxpayer.
John R. Hitt, Assistant Attorney General, for the Commissioner of Revenue.
The following submitted briefs for amici curiae:
Holly K. Hemphill & Joshua D. Odintz, of the District of Columbia, & Donald M. Griswold for International Mass Retail Association.
Stephen Ziobrowski for The National Retail Federation.
Kathleen King Parker for Council on State Taxation.
Peter L. Banis, pro se.
Present: Marshall, C.J., Greaney, Ireland, Spina, Cowin, & Sosman, JJ.
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. 64I, § 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 over-all 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 released to the customer. Because New Hampshire collects no State excise tax, customers of Circuit City stores in Massachusetts willing to travel to a Circuit City store in New Hampshire to pick up their purchases are able to save the five per cent sales tax that otherwise would be added to the retail price pursuant to G.L. c. 64H, § 2.
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, and releases the item to the customer at the pick-up counter. Circuit City's DPS system then credits the sale to the Massachusetts store and credits a sales commission to the sales associate who initiated the sale at the Massachusetts store. Until the merchandise is picked up, customers may demand a refund or exchange at the store where the original sale occurred or choose to pick up the merchandise there instead of traveling to the designated alternative location.1
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.2
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 Circuit City stores in Massachusetts and designated that they would travel to a New Hampshire Circuit City store to pick up the item.3 Circuit City paid the assessment in full and filed a timely application for an abatement that was deemed denied. It then filed a petition with the board pursuant to G.L. c. 62C, § 39, challenging the denial of the abatement. In its decision, the board concluded that the alternative location sales at issue qualified as Massachusetts sales and, thus, were properly subject to "sales/use" tax.4
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 sales5 that occur in Massachusetts are subject to the sales tax imposed by G.L. c. 64H, § 2. The parties agree that the statutory definition of a sale in G.L. c. 64H, § 1, applies and, thus, a sale, for purposes of this appeal, includes "any transfer of title or possession ... of tangible personal property ... by any means whatsoever." The focus of the parties' disagreement is when, and where, title passed from Circuit City to the customers in connection with the purchased merchandise in the alternative location sales at issue.6 The commissioner asserts that title passed at the cash register when Circuit City received payment for the merchandise and the customer sales receipt, representing ownership of the purchased goods, was handed to the customer. Circuit City argues that title did not pass until the purchased merchandise was physically placed in the customer's hands in New Hampshire.7 So far as we are aware, the concept of title in circumstances, as here, where modern inventory computer systems allow a multi- State corporation to accept full payment in one State for merchandise located in another State, while simultaneously "reserving" the merchandise (purchased "sight unseen") with the understanding that the customer will take physical possession of the merchandise at his or her convenience, has yet to be considered by an appellate court.
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....
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