John T. Cyr & Sons, Inc. v. State Tax Assessor

• Citation: 2009 ME 52,970 A.2d 299
• Decision Date: 14 May 2009
• Docket Number: Docket: Ken-08-82.
• Parties: JOHN T. CYR & SONS, INC. v. STATE TAX ASSESSOR.
• Court: Supreme Judicial Court of Maine (US)

970 A.2d 299

2009 ME 52

JOHN T. CYR & SONS, INC. v. STATE TAX ASSESSOR.

Docket: Ken-08-82.

Supreme Judicial Court of Maine.

Argued: September 15, 2008.

Decided: May 14, 2009.

Christine Burke Worthen, Esq., (orally), Bernard J. Kubetz, Esq., Eaton Peabody, Bangor, for John T. Cyr & Sons, Inc.

G. Steven Rowe, Attorney General, Kelly L. Turner, Asst. Atty. General, (orally), Augusta, for State Tax Assessor.

Sarah H. Beard, Esq., Jonathan A. Block, Esq., Robert A. Creamer, Esq., Pierce Atwood, LLP, Portland, for amicus curiae Maine Motor Transport Association.

Panel: SAUFLEY, C.J., and CLIFFORD, ALEXANDER, LEVY, SILVER, MEAD, and GORMAN, JJ.

SAUFLEY, C.J.

[¶ 1] We are asked to determine whether motor coaches owned and operated by John T. Cyr & Sons, Inc., are exempt from a statutory use tax pursuant to 36 M.R.S. § 1760(41) (2008), which exempts certain instrumentalities that operate in interstate commerce more than eighty percent of the time. The specific question presented is whether tour buses that take passengers from cruise ships in Portland Harbor to various Maine destinations and return the passengers to the cruise ships are operating in "interstate commerce" and are, based on that usage and other interstate usage, exempt from the Maine use tax pursuant to 36 M.R.S. § 1760(41). We agree with the Superior Court (Kennebec County, Jabar, J.) that the exemption set forth in section 1760(41) does not apply to tour buses that transport cruise ship passengers on excursions within Maine, and we affirm the judgment upholding the imposition of the tax.

I. BACKGROUND

A. Use Taxation

[¶ 2] With support from amicus curiae Maine Motor Transport Association, John T. Cyr & Sons, Inc., appeals from a judgment of the Superior Court affirming the State Tax Assessor's denial of Cyr's request for reconsideration of a use tax assessment on certain of Cyr's motor coaches by Maine Revenue Services. A use tax serves to equalize tax burdens between those who make purchases within the state for in-state use and those who make purchases outside of the state for in-state use:

The necessity of a use tax is obvious. It is well known that much personal property is purchased outside the borders of the state and brought into the state for use here. This State is without authority to tax sales beyond its territorial limits. Without some tax to complement and supplement the sales tax, not only would a tax advantage be enjoyed by the buyer who purchases outside of the state and uses that property here, but also local merchants would be at a disadvantage against competition by out of state merchants who may be able to offer lower prices by reason of lower tax burdens. A typical illustration is the purchase of an automobile in a non-taxable state by a citizen of this state for use here. A Maine dealer is obliged to collect a sizeable tax on such a transaction when made in this state. Without a use tax the aggregate purchases of this character would result in a severe tax loss to the State, and present a serious handicap to Maine dealers.

Hanbro, Inc. v. Johnson, 158 Me. 180, 184, 181 A.2d 249, 251 (1962), quoted in Brent Leasing Co. v. State Tax Assessor, 2001 ME 90, ¶ 11, 773 A.2d 457, 460-61. Thus, unless an exemption applies, 36 M.R.S. § 1861 (2008) calls for taxation of the "use ... in this State of tangible personal property or a service, the sale of which would be subject to tax under section 1764 [`Tax against certain casual sales'] or 1811 [`Sales tax']." The statutory exemption at issue in this appeal exempts from the use tax "[t]he sale of a vehicle ... that is placed in use by the purchaser as an instrumentality of interstate or foreign commerce within 30 days after that sale and that is used by the purchaser not less than 80% of the time for the next 2 years as an instrumentality of interstate or foreign commerce." 36 M.R.S. § 1760(41). With this statutory framework in mind, we examine the facts to which the parties stipulated.

B. Factual Background

[¶ 3] Cyr is a Maine corporation doing business in Old Town. At all relevant times, Cyr operated as a company providing school bus and motor coach transportation. Between August 2001 and March 2004, Cyr purchased twenty-six motor coaches that it believed qualified for the subsection (41) exemption from sales and use tax as instrumentalities operating in interstate commerce more than eighty percent of the time.

[¶ 4] Within thirty days after Cyr's purchase of the coaches, they were used for some interstate transport. During the next two years, the coaches were used for two distinct purposes: (1) to transport passengers across Maine state lines, and (2) to transport cruise ship passengers to and from Maine points. If the cruise passenger transportation is considered to be "interstate" commerce, then the coaches will have operated in interstate commerce for at least eighty percent of the time during the identified period, as provided in the statutory exemption to the use tax.

[¶ 5] Periodically during the use period, Cyr would provide coaches to DCNE, an independent tour operator based in Florida. Pursuant to written or verbal agreements with cruise lines, DCNE provided tour operators to conduct cruise passenger excursions on shore in Maine while the cruise ships remained in port. All contracts could be terminated by either the cruise line or DCNE upon notice.

[¶ 6] These on-shore excursions consisted primarily of day trips or tours in the Bar Harbor or Portland areas. The excursions included bus tours of Acadia National Park and the City of Portland, schooner cruises of Casco Bay, and walking tours of Bar Harbor between the months of May and October. The excursions did not, themselves, leave the State of Maine. The cruise lines determined which excursions were offered, and DCNE described the offerings in brochures provided to cruise passengers by the cruise lines. The brochures provided information regarding the nature of the tour, the type of transportation, the tour's duration, the duration of each "leg" of the tour, the physical requirements for the tour, and suggestions of proper clothing or footwear, depending on the nature of the tour. The cruise lines would select the excursions to be offered, and DCNE would make the appropriate arrangements, including the reservation of coaches. DCNE would list all excursions offered on a particular date and assign "allotments" for each tour by determining how many coaches were available for each tour and establishing the minimum and maximum passenger capacity. A tour operator schedule was produced from this information.

[¶ 7] Passengers were invited to register for the excursions, subject to availability and based on passengers' physical limitations, after booking a cruise and receiving a cabin number. The excursions were optional; passengers could participate in an excursion, remain on the ship, or explore the port independently. Excursions were not offered to non-cruise ship passengers. Passengers were required to be aboard the cruise ship at the designated time of departure, whatever their choice.

[¶ 8] Passengers could book the excursions either by internet or telephone and had to pay for the excursions immediately. Eighty percent of excursions were booked before passengers boarded the cruise ships. A passenger could also book an excursion while aboard, subject to availability, up to seventy-two hours before arrival at the designated port. Roughly thirty days before each scheduled excursion, the cruise lines would confirm with DCNE the number of passengers registered. About seventy-two hours before a scheduled excursion, the cruise line would send DCNE a final head count for that excursion.

[¶ 9] The cruise lines accepted payment, processed registrations, and determined the passenger price for each excursion. In certain circumstances, such as inclement weather, a passenger could cancel a reservation and obtain a refund. The cruise lines could, at their discretion, cancel an excursion if the minimum number of passengers was not booked for that excursion. If more than the maximum number of passengers were interested in an excursion, the cruise line could contact DCNE to request an expansion of the maximum capacity. DCNE could either grant or deny this request, depending on motor coach availability, economy, and demand.

[¶ 10] Cyr provided DCNE with motor coach transportation for excursions during the use period, though these parties never executed a written agreement. DCNE would make written requests for motor coaches for the tour season, and Cyr would review the requests and advise DCNE whether it could provide coaches. If Cyr advised that it could not provide them, DCNE could make arrangement with other transportation providers, if necessary. Cyr could agree or refuse to provide coaches to DCNE in its sole discretion. DCNE could cancel its trips at any time without any penalty from Cyr.

[¶ 11] The cruise lines paid DCNE a negotiated and agreed upon rate. Cyr unilaterally set its rates on a per-coach/per-day basis and provided DCNE monthly invoices. Cyr has never had contact with any cruise lines.

[¶ 12] Cyr filed use tax exemption certificates for the twenty-six coaches with Maine Revenue Services. Maine Revenue Services audited the sales and use tax for the period of August 1, 2001, to March 31, 2004. Maine Revenue Services assessed use taxes, interest, and penalties on twenty of the twenty-six coaches purchased during the period on the basis that they were not exempt instrumentalities of interstate commerce. In sum, the use tax was $170,074.43, the interest was $51,576.96, and the penalties totaled $42,518.61.

[¶ 13] Cyr conceded that fourteen of the twenty taxed coaches did not qualify for the exemption.¹ Accordingly, Cyr paid $83,220 in use taxes assessed on those fourteen coaches.

[¶ 14] Cyr requested reconsideration of the assessment on the six other coaches pursuant to 36 M.R.S. § 151 (2008). The State Tax...