TOWN FAIR TIRE CENTERS, INC. vs. COMMISSIONER OF REVENUE.

MARSHALL, C.J. We consider in this appeal whether a vendor who sells "tangible personal property" to a Massachusetts resident is obligated to collect and remit Massachusetts use tax where the customer purchases and takes delivery of the merchandise

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outside the Commonwealth. Following a sales and use tax audit of Town Fair Tire Centers, Inc. (Town Fair), concluding, among other things, that certain automobile tires had been sold at Town Fair's New Hampshire stores to Massachusetts residents and inferentially were installed on vehicles registered in Massachusetts, the Commissioner of Revenue (commissioner) assessed use tax and related penalties against Town Fair for failing to collect use taxes on those tire sales. See G. L. c. 64I, § 4. [Note 1] Town Fair appealed to the Appellate Tax Board (board), which ruled in favor of the commissioner, finding that the automobile tires at issue were intended for use in the Commonwealth. Town Fair appealed from the board's decision, see G. L. c. 58A, § 13, and we transferred the case here on our own motion. Because we conclude that the applicable Massachusetts statutes do not permit the Commonwealth to assess use taxes against a vendor in circumstances such as these, we reverse.

1. Background. We summarize the facts found by the board, except where noted. Town Fair is a Connecticut corporation whose principal business is the retail sale and installation of automobile tires. During the "period at issue" in this matter, October 1, 2000, to April 30, 2003, Town Fair operated sixty stores in New England, including eighteen stores in Massachusetts [Note 2] and three stores in New Hampshire. [Note 3] Town Fair collected and remitted Massachusetts sales tax on tire sales at its

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Massachusetts stores, as well as sales tax on tire sales at its stores located in those other States that impose a sales tax. [Note 4] It did not collect Massachusetts use tax in connection with the sale of tires at its stores outside Massachusetts.

In 2003, an auditor with the Department of Revenue (department) commenced a sales and use tax audit of Town Fair for the period at issue. By agreement with Town Fair, the auditor utilized a "block sampling" method, selecting a single month, September, 2002, for review. The auditor's examination of records from, inter alia, Town Fair's three New Hampshire stores for that month identified 313 invoices in which the invoice listed a Massachusetts address beneath the name of the purchaser. [Note 5] Many -- but not all -- of the invoices listed a Massachusetts telephone number, [Note 6] and certain purchasers who paid by check provided a Massachusetts driver's license. [Note 7] The invoices included the vehicle make and model, but there was no information regarding the State of registration, license plate number, or inspection sticker information of the vehicles. There is no evidence that any of the tires sold in the 313 transactions under review were actually stored or used in Massachusetts, the board made no such finding, and the commissioner does not argue otherwise.

Based on the 313 invoices listing a Massachusetts address, the auditor identified the sale in each case as having been made to a Massachusetts resident and, "[c]oncluding" (in the board's words) that those purchasers "would use the tires installed on their vehicles in the Commonwealth" (emphasis added), the

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auditor determined that Town Fair should have collected and remitted Massachusetts use tax for the 313 sales. [Note 8] The commissioner subsequently assessed Town Fair approximately $108,947 of uncollected use taxes based on those sales. [Note 9] Town Fair applied for an abatement, which the commissioner denied. Town Fair then appealed to the board, see G. L. c. 58A, § 7, and G. L. c. 62C, § 39, which affirmed the commissioner. The board found "[b]ased upon the Massachusetts addresses, telephone numbers and driver's license information contained in the record" that the tires sold by Town Fair in the pertinent transactions "were installed on vehicles owned or operated by Massachusetts residents." Based on the same evidence, and "the absence of evidence to the contrary," the board "inferred" that the vehicles "also bore Massachusetts registration plates ('license plates') and certificates of inspection." From this, the board "found" that the sales at issue "were sales of tangible personal property to be stored, used or consumed in Massachusetts" (emphasis added), and held that the commissioner "properly assessed" Town Fair for use tax in connection with those sales. We now turn to the merits. [Note 10]

2. Discussion. a. Standard of review. The decision of the board interpreting a statute "will not be reversed or modified if it is based on a correct application of the law and if it is based on substantial evidence." Kennametal, Inc. v. Commissioner of Revenue, 426 Mass. 39, 43 (1997), cert. denied, 523 U.S. 1059 (1998). "We review questions of statutory interpretation de novo . . . giving 'substantial deference to a reasonable interpretation

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of a statute by the administrative agency charged with its administration enforcement.' " Attorney Gen. v. Commissioner of Ins., 450 Mass. 311, 319 (2008), quoting Commerce Ins. Co. v. Commissioner of Ins., 447 Mass. 478, 481 (2006). See Luchini v. Commissioner of Revenue, 436 Mass. 403, 405 (2002). "[P]rinciples of deference" are not, however, "principles of abdication," Nuclear Metals, Inc. v. Low-Level Radioactive Waste Mgt. Bd., 421 Mass. 196, 211 (1995), and an incorrect interpretation of a statute by an administrative agency is entitled to no deference. Kszepka's Case, 408 Mass. 843, 847 (1990), and cases cited. The duty of statutory interpretation rests ultimately with the courts. See Commerce Ins. Co. v. Commissioner of Ins., supra, citing Cleary v. Cardullo's, Inc., 347 Mass. 337, 343-344 (1964). In our judgment the board has interpreted the statutes at issue in a manner that cannot be sustained.

b. Statutory framework. The use tax and the sales tax "are complementary components of our tax system, created to 'reach all transactions, except those expressly exempted, in which tangible personal property is sold inside or outside the Commonwealth for storage, use, or other consumption within the Commonwealth.' " Commissioner of Revenue v. J.C. Penney Co., 431 Mass. 684, 687 (2000), quoting M & T Charters, Inc. v. Commissioner of Revenue, 404 Mass. 137, 140 (1989). The use tax is governed by the provisions in G. L. c. 64I. Section 2 of that chapter imposed an excise tax, at the rate of five per cent of the sales price, [Note 11] "upon the storage, use or other consumption in the commonwealth" of tangible personal property that is "purchased . . . for storage, use or other consumption within the commonwealth" (emphasis added). [Note 12] Liability to pay the use tax generally falls on the purchaser

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who uses the property subject to the tax. G. L. c. 64I, § 3. Purchasers may, however, offset against such liability any tax paid on that property to a vendor under the laws of another State. G. L. c. 64I, § 7 (c).

At issue here is the application of G. L. c. 64I, § 4, which concerns a vendor's obligation to collect use tax where such a tax is imposed under G. L. c. 64I, § 2. See note 1, supra. Vendors "engaged in business in the commonwealth" [Note 13] who sell tangible personal property or services "for storage, use or other consumption in the commonwealth" are required to collect the tax from the purchaser and give the purchaser a receipt, unless the "storage, use, or other consumption" is not "taxable" at the time of sale, in which case vendors are required to collect the tax when storage, use, or other consumption "becomes taxable." G. L. c. 64I, § 4. Where a vendor is required to collect use tax and fails to do so, the tax is "owed by the vendor to the commonwealth." [Note 14] Id.

c. Application of G. L. c. 64I. In upholding the commissioner, the board noted Town Fair's "numerous arguments as to why the transactions at issue did not come within the scope of the statute," but concluded that "those arguments were based on a misinterpretation of the relevant law." Town Fair counters that a vendor's liability for use tax under G. L. c. 64I, § 4, "does not arise in connection with an out-of-State sale merely by virtue of the purchaser's intending to store, use or consume merchandise in Massachusetts," as the board held (emphasis added). Rather, a vendor is liable for use tax under G. L. c. 64I, § 4, only if the tires "were actually stored, used or consumed in Massachusetts." We agree. It is axiomatic that a use tax must

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be paid by a purchaser (or collected by a vendor) only if a tax is due. See G. L. c. 64I, § 2 (defining when use tax is imposed). Thus, G. L. c. 64I, § 4, imposes no obligation on a vendor to collect use tax unless and until the "storage, use or consumption of tangible personal property" occurs in Massachusetts, either at the time of sale or at some later point. See Commissioner of Revenue v. J.C. Penney Co., supra at 684, 687 (obligation on vendor to collect use tax arises when exercise of right or power incident to ownership of tangible personal property, such as control, occurs in Massachusetts). See also LR 82-104 (Oct. 21, 1982), 1 Official MassTax Guide PWS-673 (West 2007) ("a vendor's use tax liability arises when the property sold by him is first stored, used, or otherwise consumed in Massachusetts [ordinarily when the property is delivered in Massachusetts]" [emphasis added]); Advanced Sales and Use Tax in Massachusetts 16 (Lorman Educ. Servs. 2005) ("the acts constituting the exercise of a right or power over property must occur in Massachusetts" [emphasis added]). There is no evidence that the tires sold by Town Fair were actually stored, used, or consumed in Massachusetts, [Note 15] and the board did not make such a finding. Because the statute is unambiguous, we "follow the ordinary meaning of the words." Kszepka's Case, 408 Mass. 843, 846 (1990).

The board acknowledged that there was no evidence of actual use of the tires within the Commonwealth. In order to bring the tire sales within the scope of the use tax statutes, the board first "found" that the sales were to Massachusetts residents because of the Massachusetts residence and telephone information listed on the invoices. It then viewed the evidence "against the backdrop of motor vehicle registration and operation requirements of the Commonwealth," and "inferred" that the tires were installed on vehicles that "bore Massachusetts license plates and inspection stickers." [Note 16] From this the board reasoned that evidence of actual use or storage in Massachusetts is not required because, in the

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board's words, "the liability for the [use] tax arises at the time of the purchase if the purchaser's intent is to use the property in the Commonwealth" and "the use tax is properly imposed if the purchaser intended to use the tires in the Commonwealth at the time of purchase" (emphasis added). The board's conclusion is untenable. It is not supported by the language of the statute. Use in the Commonwealth is a necessary prerequisite. See Commissioner of Revenue v. J.C. Penney Co., supra at 688 (statute requires that actual use, storage, or consumption "must occur in Massachusetts in order for a taxable 'use' to occur"). [Note 17]

For her part, the commissioner acknowledges that "intent" to use the goods in Massachusetts is not sufficient to trigger the use tax. [Note 18] In her view, "compelling circumstantial evidence" that the tires were sold to Massachusetts residents and installed on vehicles registered in Massachusetts leads, in her words, "to the presumption" that the tires "indeed were used in Massachusetts." Her argument fails. The Legislature has specified with particularity the circumstances in which "for use in the Commonwealth" permissibly may be presumed. See G. L. c. 64I, § 8 (a) (presumption that sale is "for storage, use or other consumption" in Massachusetts arises where tangible personal property is sold "for delivery in the commonwealth"); G. L. c. 64I, § 8 (f) (presumption that personal property shipped or brought into Commonwealth within six months of purchase is purchased "for storage, use or other consumption in the commonwealth"). There is no Massachusetts statutory presumption of use in the Commonwealth where personal property is sold to a Massachusetts resident outside the Commonwealth, even where the

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goods purchased out of State may be affixed to property registered in Massachusetts. [Note 19] We will not recognize a presumption that the Legislature has not established. See Gould v. Gould, 245 U.S. 151, 153 (1917) ("In the interpretation of statutes levying taxes it is the established rule not . . . to enlarge their operations so as to embrace matters not specifically pointed out"); 3A N.J. Singer, Sutherland Statutory Construction § 66:3, at 35-36 (rev. 6th ed. 2003) (revenue legislation should not be construed "to add what is not found in the statute"). [Note 20]

The absence of a statutory presumption that a vendor's knowledge that a purchaser is a resident of Massachusetts will permit a finding that the goods purchased out of State were purchased "for" use in Massachusetts and actually used in the Commonwealth is particularly significant because Legislatures in other States have enacted just such a presumption. [Note 21], [Note 22] The Legislature may, of course, enact such a presumption, but in the

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absence of any such statutory authorization, it is error to rely on a presumption that tires sold to a Massachusetts resident outside the Commonwealth were actually used in the Commonwealth. And the principles of interpretation of tax statutes preclude us from "engrafting such language on the statute as written." See Morton Bldgs., Inc. v Commissioner of Revenue, 43 Mass. App. Ct. 441, 446 (1997). [Note 23]

Decision of the Appellate Tax Board reversed.