GLOBAL COMPANIES, LLC vs. COMMISSIONER OF REVENUE.

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

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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. [Note 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." [Note 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

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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, cert. denied, 543 U.S. 957 (2004), quoting Bill DeLuca Enters., Inc. v. Commissioner of Revenue, 431 Mass. 314, 315 (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, quoting South Boston Sav. Bank v. Commissioner of Revenue, 418 Mass. 695, 698 (1994). See AA Transp. Co. v. Commissioner of Revenue, 454 Mass. 114, 121 (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 (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, quoting RHI Holdings, Inc. v. Commissioner of Revenue, 51 Mass. App. Ct. 681, 685 (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

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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 (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 (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 (1998), citing Oklahoma Tax Comm'n v. Jefferson Lines, Inc., 514 U.S. 175, 179 (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, quoting Perini Corp. v. Commissioner of Revenue, 419 Mass. 763, 766 (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 (1978), quoting Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (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 (1995) (phrase

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"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 (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), [Note 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. [Note 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. 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 (1975) (phrase "engaged in commerce" indicates limited assertion of Federal jurisdiction). Therefore, the Court concluded, the FAA exemption

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had limited applicability. Circuit City Stores, Inc. v. Adams, supra at 119. As the board noted, in United States Glue Co. v. Oak Creek, 247 U.S. 321 (1918), the Court made a similar distinction between activity that affects foreign and interstate commerce and activity that constitutes engaging in foreign or interstate commerce. [Note 5] Id. at 325, 329 (even though Wisconsin manufacturer engaged in interstate commerce, State tax did not so affect interstate commerce as to violate commerce clause).

Here, as the board noted, even if Hy-Line's vessels affected foreign and interstate commerce the language of the statute is not satisfied. There is no evidence in the record to establish that the vessels were "engaged" in foreign or interstate commerce. It is telling that, although Global argues that Hy-Line's vessels engaged in foreign and interstate commerce, it offers no analysis of the word "engaged." However, as the Circuit City Stores case (which Global does not cite) demonstrates, where Congress intended to limit those who were exempt from coverage of the FAA, it is reasonable to conclude that the Congress deliberately chose the word "engage" to express that limited purpose. By analogy, we conclude that the Legislature's use of the word "engaged" in G. L. c. 64H, § 6 (o), also was meant to express a limited application of the sales tax exemption. Macy's East, Inc. v. Commissioner of Revenue, 441 Mass. 797, 804 (2004).

Because § 6 (o) serves a different purpose from § 6 (a), and is not tied to the constitutional commerce clause prohibitions, we conclude that it was reasonable for the board to interpret § 6 (o) as a limited tax exemption. AA Transp. Co. v. Commissioner of Revenue, 454 Mass. 115, 119 (2009) (court will affirm board's reasonable construction of statute).

Global also argues that "[n]either the Commissioner nor the [b]oard cited any stated policy or other authority that circumscribes the [L]egislature's grant of the exemption under G. L. c. 64H, § 6 (o)," justifying the board's narrow reading. There was no error. It is Global's burden to show that it is entitled to

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the exemption and it has failed to do so. See AA Transp. Co. v. Commissioner of Revenue, supra at 121. We have determined that the board's construction of § 6 (o) is reasonable. [Note 6] Macy's East, Inc. v. Commissioner of Revenue, supra at 804 (statute granting tax exemption strictly construed).

In sum, the board's interpretation of the phrase "engaged in foreign and interstate commerce" is reasonable under the statute's language and Federal jurisprudence. Global has not met its burden in demonstrating why, without challenging the constitutionality of the statute under the commerce clause, the board must use commerce clause jurisprudence to discern the intent of our Legislature.

Global next argues that Hy-Line's vessels are engaged in foreign and interstate commerce because they are part of an essential transportation system [Note 7] that brings foreign and out-of-State travelers to the islands, and because the vessels travel into Federal (and international) waters during their trips.

Concerning the presence of foreign and out-of-State travelers on the vessels, Global first argues that the board erred in rejecting its argument that the focus of the statute is on the activities of the passengers rather than on the activities of the vessels themselves. There was no error.

Most important, Global's focus on the activities of the passengers is contrary to the plain language of the statute, which, as the board stated, explicitly focuses on the activities of the vessels. G. L. c. 64H, § 6 (o) (exempting "sales of fuel . . . to vessels engaged in foreign and interstate commerce" [emphasis

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added]). See Massachusetts Broken Stone Co. v. Weston, 430 Mass. 637, 640 (2000) (where language of statute is clear, court need not look beyond statute itself). Thus, to qualify for the exemption, Global must demonstrate that Hy-Line's vessels are engaged in foreign and interstate commerce.

Despite the statute's plain language, Global argues that we should be guided by Opinion of the Justices, 428 Mass. 1201 (1998). The opinion is not apt. At issue was a proposed two-tiered surcharge on vehicle rentals under which Boston residents would pay three dollars and all others, including out-of State and foreign residents, would pay ten dollars. Id. at 1205. The court held that the surcharge on the individual transactions of out-of State and foreign residents was a facially discriminatory measure that burdened interstate commerce in violation of the dormant commerce clause. Id. at 1206, 1208. See George S. Carrington Co. v. State Tax Comm'n, 375 Mass. 549, 552 (1978) (tax that discriminates against interstate commerce is invalid).

Unlike the proposed surcharge in Opinion of the Justices, supra, here, there is no claim that the sales tax burdens the commerce clause. The sales tax is imposed not on individuals, but on a transaction for the purchase of fuel that is conducted entirely between two Massachusetts companies, on Massachusetts soil. The board's conclusion that, because Hy-Line was not involved in bringing any foreign or out-of-State travelers into the Commonwealth and that its dealings with them was "clearly domestic" is supported by our case law. In H.P. Hood & Sons v. Commonwealth, 235 Mass. 572, 575, 577 (1920), this court held that, although transporting milk from other States into Boston was interstate commerce, its subsequent processing, delivery, and sales were purely intrastate and subject to an income tax. The court stated that the sales "are as clearly domestic transactions as are sales by grocers or by any other retail dealers from local stocks of goods" and the "business . . . is indistinguishable from the sales by any other retail or wholesale dealer who sells from a stock of goods bought in a foreign market and brought to his store here by interstate commerce." Id. at 577.

Moreover, Global's citation to cases that hold that tourism is an activity in interstate commerce does not aid its argument

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because those cases deal with claims that various State or local statutes, regulations, or ordinances violated the commerce clause, whereas here the challenge is to the board's interpretation of a valid sales tax. [Note 8]

Concerning the fact that, for safety reasons, the vessels travel outside of Massachusetts waters to and from the islands, we agree with the board that this foray does not transform Hy-Line's routes into foreign commerce within the meaning of the statute. As the board pointed out, over one century ago, the United States Supreme Court rejected the argument that "the mere passage over the soil of another State" in the transportation of freight or passengers between two points in one State "renders that business foreign." Lehigh Valley R.R. v. Pennsylvania, 145 U.S. 192, 202 (1892). In the Lehigh Valley case, a certain Pennsylvania railroad route passed into New Jersey, but "[t]here was no breaking of bulk or transfer of passengers in New Jersey. The point of departure and the point of arrival were alike in Pennsylvania." Id. at 201. The Court held that this circumstance was not interstate commerce, noting that the term does "not embrace that commerce which is completely internal . . . or between different parts of the same State, and which does not extend to or affect other States." Id. at 200, quoting Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 189 (1824). The Court reiterated, "commerce . . . undoubtedly is traffic, but it is something more; it is intercourse." Lehigh Valley R.R. v. Pennsylvania, supra.

Here, we agree with the board that, like the passengers in the Lehigh Valley case, passengers on Hy-Line's vessels could not embark or disembark in Federal waters, but only did so at points located in Massachusetts. Thus, there was no "intercourse" conducted outside of Massachusetts.

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The cases on which Global relies to bolster its argument that travel into Federal waters was "engag[ing] in foreign and interstate commerce" within the meaning of the statute are not apt. Three cases concerned State policies that burdened interstate commerce; each explicitly distinguished the Lehigh Valley case. See Central Greyhound Lines, Inc. v. Mealey, 334 U.S. 653, 656-661 (1948) (tax on gross receipts burdens interstate commerce); Hanley v. Kansas City S. Ry., 187 U.S. 617, 619, 621 (1903) (railroad rates applied to out-of-State travel burdens interstate commerce); Conlin Buss Lines, Inc. v. Old Colony Coach Lines, Inc., 282 Mass. 498, 503, 505 (1933) (travel from Massachusetts to Connecticut, however negligible, is interstate commerce and therefore not subject to Massachusetts regulation). One case, Lord v. Steamship Co., 102 U.S. 541 (1880), was distinguished by the Lehigh Valley case. Lehigh Valley R.R. v. Pennsylvania, supra at 202, 203. [Note 9]

Finally, Global seems to argue that the board made an error of law in determining that Hy-Line's vessels passed through Federal and not international waters. [Note 10] To support its argument it included citations to cases and statutes in its posthearing brief to the board, but presented no evidence in this regard at the hearing. We need not belabor this argument because, even if it is true that the vessels passed into international waters, Global has failed to meet its burden to show that the vessels were "engaged" in foreign commerce while doing so. See Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 112 (2001) ("engaged" in commerce has limited meaning). Lehigh Valley R.R. v. Pennsylvania, supra at 200 ("Commerce . . . undoubtedly is traffic, but it is something more; it is intercourse"). [Note 11]

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Conclusion. For the reasons set forth above, we affirm the decision of the board denying Global's application for a sales tax abatement pursuant to G. L. c. 64H, § 6 (o).

So ordered.