NCPA - National Center for Policy Analysis


June 17, 2009

Should New Hampshire businesses have to collect Massachusetts sales taxes from border-crossing shoppers?  That's the issue in Town Fair Tire v. Massachusetts, a case before the Bay State's Supreme Judicial Court with ramifications for commerce and constitutional law well beyond New England, says Daniel J. Flynn, the author of "A Conservative History of the American Left."


  • In 2003, a Massachusetts Department of Revenue audit uncovered invoices from three New Hampshire outlets of the Town Fair Tire company (TFT) to customers with Massachusetts addresses.
  • Because Connecticut-based TFT also has locations in Massachusetts -- and therefore benefits from various public services there, from police protection to road maintenance -- the Massachusetts Appellate Tax Board argued that the company's New Hampshire locations had an obligation to collect taxes from Massachusetts customers and remit them to Massachusetts.
  • As soon as TFT's technicians noticed a customer's Massachusetts license plate and inspection sticker, the board said, they should have informed store clerks -- unaccustomed to collecting sales taxes in tax-free New Hampshire-- to collect Massachusetts taxes on those purchases.
  • So Massachusetts presented TFT with a bill for $108,947, the state's estimate of the taxes that border-crossing customers should have paid from October 2000 through April 2003.

Massachusetts has dubbed these taxes not "sales" taxes but "use" taxes; they date to the mid-sixties, when the state passed a permanent sales tax and, to keep residents from evading it and ostensibly to protect local merchants, began requiring its residents to pay the same 5 percent on items bought elsewhere that they would "use" within Massachusetts. 

Until recently, no one advanced the interpretation that out-of-state merchants had to collect the taxes from Massachusetts customers; indeed, the law outlining the use tax clearly states that it "shall be paid by the taxpayer" upon filing state income taxes.  But with compliance from its 6 million residents minimal -- and enforcement impossible -- Massachusetts has shifted focus to three out-of-state stores that some of those residents patronize.

Though ostensibly protecting in-state businesses, Massachusetts has potentially exposed them to the same kind of onerous, out-of-state intrusions that it has thrust upon Town Fair Tire, says Flynn.

Source: Daniel J. Flynn, "Interstate Confiscation Clause; Massachusetts wants even more tax revenue—from New Hampshire," Manhattan Institute, City Journal, Spring 2009.

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