Companies v. Comm'r of Revenue.

• Decision Date: 19 April 2011
• Docket Number: SJC–10724.
• Citation: 459 Mass. 492,945 N.E.2d 891
• Parties: GLOiAL COMPANIES, LLCv.COMMISSIONER OF REVENUE.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

459 Mass. 492

945 N.E.2d 891

GLOiAL COMPANIES, LLC

v.COMMISSIONER OF REVENUE.

SJC–10724.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Jan. 6, 2011.Decided April 19, 2011.

William E. Halmkin (Judith G. Edington with him), Boston, for the plaintiff.Jennifer Grace Miller, Assistant Attorney General, for the Commissioner of Revenue.Present: IRELAND, C.J., SPINA, BOTSFORD, & GANTS, JJ.IRELAND, C.J.

The plaintiff, Global Companies, LLC (Global), appeals from a decision of the Appellate Tax Board (board) denying Global's application for an abatement for sales tax it paid on the sale of fuel to a customer, Hyannis Harbor Tours, Inc., doing business as Hy–Line Cruises (Hy–Line), between July 1, 2002, and July 31, 2005, pursuant to G.L. c. 64H, § 6 ( o ). The board determined that Hy–Line did not “engage in foreign and interstate commerce” within the meaning of the statute's sales tax exemption. Global argues error in the board's legal conclusions. Because we agree with the board that Hy–Line was not “engaged in foreign and interstate commerce” within the meaning of the statute, we affirm the board's decision.

Facts and procedure. We present the essential facts as found by the board. Global, a Massachusetts company with its principal place of business in Waltham, sells fuel to commercial and industrial interests in this country and elsewhere. Hy–Line, a Massachusetts company with a principal place of business in Hyannis, is licensed by the Woods Hole, Martha's Vineyard, and Nantucket Steamship Authority (Steamship Authority) to provide daily ferry service between Hyannis and Nantucket and seasonal service between Hyannis and Martha's Vineyard and between Nantucket and Martha's Vineyard (islands). At the relevant times, Hy–Line served Massachusetts residents, but its passengers regularly included out-of-State and foreign tourists. Its vessels were not authorized to carry automobiles or other freight. To avoid the shoal waters off Massachusetts, Hy–Line vessels routinely crossed into Federal waters (i.e., over three miles from land) and then reentered Massachusetts waters, making no intervening stops.

Hy–Line purchased fuel for its seven vessels exclusively from Global, and a sales tax was charged on each sale pursuant to G.L. c. 64H, § 2.¹ Global sought a sales tax abatement for Hy–Line under G.L. c. 64H, § 6 ( o ), which provides an exemption for “sales of fuel ... to vessels engaged in foreign and interstate commerce.” ²

The Commissioner of Revenue denied Global's applications for abatement of the sales taxes and Global appealed to the board, which, after a hearing, issued its written decision in May, 2009. The board concluded that, based on the fact that Hy–Line's vessels did not ferry passengers between States or other countries and on the plain language of the statute, Hy–Line did not engage in “foreign and interstate commerce.” The board also concluded that the passage through Federal waters by Hy–Line's vessels did not amount to foreign commerce. Global appealed to the Appeals Court and we transferred the case to this court on our own motion.

Discussion. “We will not reverse a decision of the board ‘if it is based on substantial evidence and on a correct application of the law.’ ” Macy's East, Inc. v. Commissioner of Revenue, 441 Mass. 797, 800, 808 N.E.2d 1244, cert. denied, 543 U.S. 957, 125 S.Ct. 454, 160 L.Ed.2d 319 (2004), quoting Bill DeLuca Enters., Inc. v. Commissioner of Revenue, 431 Mass. 314, 315, 727 N.E.2d 508 (2000). “We have frequently recognized that an exemption from taxation ‘is a matter of special favor or grace,’ and that statutes granting exemptions are therefore to be strictly construed.” Macy's East, Inc. v. Commissioner of Revenue, supra at 804, 808 N.E.2d 1244, quoting South Boston Sav. Bank v. Commissioner of Revenue, 418 Mass. 695, 698, 640 N.E.2d 462 (1994). See AA Transp. Co. v. Commissioner of Revenue, 454 Mass. 114, 121, 907 N.E.2d 1090 (2009) (applying same principle to sales tax exemption). “[A]n exemption [is] ... to be recognized only where the property falls clearly and unmistakably within the express words of a legislative command.” South Boston Sav. Bank v. Commissioner of Revenue, supra, quoting State Tax Comm'n v. Blinder, 336 Mass. 698, 703, 147 N.E.2d 796 (1958). “The burden is on the taxpayer to demonstrate entitlement to the exemption claimed.” Macy's East, Inc. v. Commissioner of Revenue, supra, quoting South Boston Sav. Bank v. Commissioner of Revenue, supra. Although statutory interpretation is a duty of the court, “because the board is an agency charged with administering the tax law and has ‘expertise in tax matters,’... we give weight to its interpretation of tax statutes ... and will affirm its statutory interpretation if [it] is reasonable” (citations omitted). AA Transp. Co. v. Commissioner of Revenue, supra at 119, 907 N.E.2d 1090, quoting RHI Holdings, Inc. v. Commissioner of Revenue, 51 Mass.App.Ct. 681, 685, 748 N.E.2d 964 (2001).

We begin by addressing Global's core contention that the board erred in rejecting its assertion that commerce clause jurisprudence was an appropriate analytical tool for discerning what the Legislature meant by the words “engaged in foreign and interstate commerce.” The essence of Global's argument is that the phrase “foreign and interstate commerce” has been given a broad interpretation under commerce clause jurisprudence. The flaw in Global's argument is that it fails to address the reason such a broad interpretation has been given by various courts. The commerce clause of the United States Constitution grants Congress the authority, inter alia, “to regulate commerce with foreign nations, and among the several States.” Where courts consider the scope of congressional power under the commerce clause, it has been interpreted broadly. See, e.g., Heart of Atlanta Motel, Inc. v. United States, 379 U.S. 241, 253–258, 85 S.Ct. 348, 13 L.Ed.2d 258 (1964) (Title II of Civil Rights Act of 1964 valid exercise of “commerce power”). See also United States v. Darby, 312 U.S. 100, 118–120, 61 S.Ct. 451, 85 L.Ed. 609 (1941). However, under the so-called dormant commerce clause, the United States Supreme Court has “impos[ed] limits on the authority of State and local governments to regulate in ways that impinge on interstate or foreign commerce.” Opinion of the Justices, 428 Mass. 1201, 1203–1204, 702 N.E.2d 8 (1998), citing Oklahoma Tax Comm'n v. Jefferson Lines, Inc., 514 U.S. 175, 179, 115 S.Ct. 1331, 131 L.Ed.2d 261 (1995). Where a State tax has a sufficient effect on the instrumentalities of interstate and foreign commerce, it is subject to scrutiny under the dormant commerce clause. Opinion of the Justices, supra at 1204–1205, 702 N.E.2d 8, quoting Perini Corp. v. Commissioner of Revenue, 419 Mass. 763, 766, 647 N.E.2d 52 (1995). Such a tax will be valid only if it “is applied to an activity with a substantial nexus with the taxing State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State.” George S. Carrington Co. v. State Tax Comm'n, 375 Mass. 549, 552, 377 N.E.2d 950 (1978), quoting Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977). Here, we are not dealing with the scope of congressional power under the commerce clause, nor has Global claimed that the State sales tax exemption should be subject to scrutiny under the dormant commerce clause.

In any event, as detailed infra, where the United States Supreme Court has been called on to discern the congressional intent underlying a Federal law created pursuant to its power under the commerce clause, the Court's interpretation of that intent has differed depending on whether the adjective modifying “commerce” is “affecting” or “engaging.” Compare Allied–Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 277, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995) (phrase “affecting commerce” indicates congressional intent to use full authority of its commerce clause powers), with Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 115–116, 121 S.Ct. 1302, 149 L.Ed.2d 234 (2001) (phrase “engaged in commerce” provides limited exception to Federal Arbitration Act [FAA] ).

Global further argues, in essence, that because G.L. c. 64H, § 6 ( o ), is an additional exemption to the one provided in G.L. c. 64H, § 6 ( a ),³ there is no support in the statutory structure for the board's central argument that G.L. c. 64H, § 6 ( o ), requires a narrow construction of “engaging” in interstate commerce. We disagree.

We conclude that although § 6 ( a ) provides exemptions for the same activities the United States Constitution already requires States to exempt, the plain language of § 6 ( o ) provides an additional, but limited, exception for the activity of “engag[ing]” in foreign or interstate commerce. Thus, under the statute, even if a sales tax is valid because it does not burden interstate commerce, a business might qualify for a sales tax exemption under § 6 ( o ) if it demonstrates that its activities constitute “engag [ing]” in interstate or foreign commerce.⁴

Our conclusion is supported by the Supreme Court's analysis of the same language in a case involving the FAA. In Circuit City Stores, Inc. v. Adams, supra, the Court rejected an argument that Congress intended an exemption from coverage of the FAA for those “engaged in commerce” to be applied broadly so as to incorporate the full extent of its commerce powers. Id. at 115–116, 121 S.Ct. 1302. In making that determination, it held that, although the phrase “ ‘affecting commerce’ indicates Congress' intent to regulate to the outer limits of its authority under the Commerce Clause,” the phrase “ ‘engaged in commerce’ [is] understood to have a more limited reach.” Id., citing United States v. American Bldg. Maintenance Indus., 422 U.S. 271, 279–280, 95 S.Ct. 2150, 45 L.Ed.2d 177 (1975) (phrase “engaged in...