Battle lines have been drawn between tax-free New Hampshire and "Taxachusetts" — and the line is at the states' border.
Bay State officials said New Hampshire businesses should be collecting Massachusetts' 5 percent sales tax from residents who cross the border to shop — and save money.
Massachusetts is suing Connecticut-based Town Fair Tire for allowing its residents to purchase tires at New Hampshire stores and not charging them the 5 percent Massachusetts sales tax. The lawsuit is based on the state's use tax, which is applied to items bought outside Massachusetts that are intended to be used in the state.
The case now before the Supreme Judicial Court applies only to Town Fair Tire, but some experts think the results could be much more far-reaching.
The case doesn't mean Massachusetts has new collection initiatives or will have any impact on New Hampshire's retailers, according to a statement from Richard Bliss, spokesman for the Massachusetts Department of Revenue.
But two law professors who studied the case disagree.
"Taken to its logical extreme, that rule would require a nationwide retailer to determine the residence of all its customers," professors John Swain and Walter Hellerstein wrote in the trade publication "State Tax Notes."
The professors also warned that if Massachusetts forces out-of-state retailers to collect its 5 percent tax, neighbors with higher tax rates like Rhode Island (7 percent) and Connecticut (6 percent) could demand Massachusetts stores collect and give them the extra tax their own residents would have paid if they shopped at home.
Customers, business owners vocal about objections
New Hampshire business owners and customers said they won't be happy if Massachusetts chases them across the border in pursuit of tax dollars.
Nancy Kyle, president of the New Hampshire Retail Merchants Association, said she's outraged by the case because New Hampshire has worked hard to fend off a sales tax. New Hampshire is the only New England state that doesn't have a sales tax.
"It's not the job of New Hampshire retailers to enforce Massachusetts tax law," Kyle said.
She said Massachusetts is "testing the waters" by going after a medium-sized regional retailer like Town Fair Tire and, if it's successful, it could go after big-box stores and small retailers next.
"Are we going to screen every shopper to see where they're from?" Kyle said.
Rep. Norman Major, R-Plaistow, a member of the state House Ways and Means Committee, said Massachusetts would be overstepping its bounds if the state ever tried to cross the border to collect tax revenue or pressure New Hampshire retailers into charging Bay State taxes.
"The person in New Hampshire selling things in his store and not delivering to Massachusetts has no idea where it's going to end up," Major said.
Attempts to force New Hampshire store owners to charge the tax would be intimidating to customers from both sides of the border, he said.
"I don't think we should stand for that," Major said.
Retailers don't want to be tax collectors
Jeff LaPointe, store manager at John Deere dealer James R. Rosencrantz & Sons in Derry and Kingston, said a good percentage of their customers do come from south of the border. But the store isn't responsible for charging Massachusetts sales tax if the customer picks up the tractor at either store, he said.
"It's not my responsibility to make sure that you pay the tax," LaPointe said.
If that responsibility did become the store's job, then it could mean fewer Massachusetts customers shopping in their stores, LaPointe said.
The only time a customer is charged the 5 percent Massachusetts tax is when a tractor is delivered to a Massachusetts home or business, LaPointe said.
The same is true for Best Buy in Salem, according to store manager Don Smith.
If Massachusetts suddenly demanded Massachusetts residents pay sales tax in another state, Best Buy would have to comply with the rule, Smith said.
"It would be another step," he said. "But if that's what the law was, we'd take that step."
A manager at Fay's Salem Tire in Salem said any changes in tax law might not have much of an effect on that business.
Manager Rich Stacy said the store has a lot of loyal customers from Massachusetts who would likely still continue to shop with them, regardless of whether they had to pay Massachusetts taxes.
Stacy said he was aware of the Town Fair Tire lawsuit, but also was concerned that customers looking for a bargain might go elsewhere.
"People are going to try to save as much as possible," Stacy said.
Shoppers cross the border to save
The problem with the use tax is that it's up to individual customers to file — and few people ever do.
Massachusetts tax officials said they have no idea how much money the state is missing out on from residents who shop across the border.
James Lefave, a Wilmington, Mass., homeowner, said he had never heard of a use tax while loading windows into the back of his pickup truck at The Home Depot in Salem yesterday.
Like many Massachusetts residents, Lefave traveled north to pick up 20 windows and a garage door to avoid paying the 5 percent sales tax that would have been tacked on to his purchase if they were delivered to his home.
"I didn't know you had to claim it," Lefave said.
Mary Reese, chairwoman of the Greater Salem Chamber of Commerce, said forcing local businesses to enforce Massachusetts tax law during tough economic times would harm local businesses.
"My suggestion would be rather than attempt to harm our New Hampshire businesses, which border Massachusetts, the commonwealth should adopt a less burdensome tax structure, which helps their own consumers and businesses," Reese said.
Staff writer Bill Kirk and The Associated Press contributed to this report.
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