The Massachusetts Appellate Tax Board recently addressed whether a retailer was liable for sales taxes not collected from customers during certain periods when the Commonwealth held sales tax holidays. The retailer, a large furniture and mattress store, had received orders and at least partial payment from customers for merchandise before the sales tax holiday periods. It was the store’s general policy, however, that orders could be canceled any time before delivery occurred. Due to the lag time between orders being placed and goods being delivered to customers, many (i.e., several thousand) customers learned of the upcoming sales tax holidays and canceled pending orders. The goods were repurchased during the designated sales tax holiday periods. This created “chaos” for the store employees, and as several years of successive sales tax holidays went by, the taxpayer took many steps to try to ease the burden placed on it as a result of the mass cancellations. The taxpayer went so far as to print a guide to assist employees with sales tax holiday issues. Per the guide, store employees were not to initiate any conversation about canceling and reordering and canceled and reordered items could not be delivered on the sales tax holidays. The taxpayer did not collect and remit sales tax during the sales tax holidays on the sales of goods that were canceled and reordered. Later the taxpayer self-assessed taxes for one year after reading in a Department of Revenue Technical Information Release that a vendor may not void and rewrite a sale that has taken place before the holiday to bring the transaction in under the sales tax holiday rules. The taxpayer subsequently sought an abatement of the tax assessed on canceled and reordered items for 2010 and 2011 and a refund of the taxes that were self-assessed in 2012. The taxpayer also requested an abatement of all associated penalties.
Under the Massachusetts sales tax holiday legislation, “eligible sales” were transactions occurring on the sales tax holidays where either transfer of possession or payment in full for the property occurred during the holiday. Prior sales and layaway sales were not considered eligible sales. The Commissioner first argued that these sales were not “paid in full” during the sales tax holiday because the taxpayer did not always provide a customer with a full refund and then subsequently recharge the customer’s credit card. In the Board’s view, however, this was a reasonable process implemented by the store to deal with the mandated sales tax holidays, while at the same time honoring its long-standing cancellation policy. The Commissioner also argued that the sales at issue were “prior sales” that were excluded from the sales tax holidays. However, the Board determined that neither title nor possession passed to the customers prior to the goods being delivered. And, any sales that had already been delivered were not eligible to be canceled and reordered during the sales tax holiday. The Board concluded that the taxpayer was entitled to a full abatement of taxes and penalties. Please contact Joe Senier with questions Jordan’s Furniture, Inc. v. Commissioner of Revenue.