Massachusetts Supreme Judicial Court Rules that Use Tax Imposed on Fleet Vehicles is Fairly Applied

A recent Massachusetts case reminds taxpayers that sales and use taxes are apportioned differently than income tax.

By Tina Chunn, SALT senior manager

When purchasing property that will be used across multiple states, the application of sales and use taxes can often be confusing. This confusion significantly increases if the property is exempt or not subject to tax in some of the states of use. The Massachusetts Supreme Judicial Court (the “Court”) recently addressed this issue in connection with the purchase of fleet vehicles used in interstate transportation.

On Jan. 6, 2016, the Court issued a decision in Regency Transportation v. Commonwealth to uphold the Department of Revenue’s assessment of use tax on fleet vehicles purchased by Regency Transportation (“Regency”). [1] Regency is a licensed interstate carrier that operates throughout the Eastern United States with terminals, maintenance locations and warehouses in Massachusetts and New Jersey. Regency purchased and registered vehicles from its vendors outside Massachusetts and did not pay sales tax to the states where the vehicle was purchased or registered because either 1) they did not have a sales tax or 2) they provided a “rolling stock exemption” for vehicles engaged in interstate commerce. [2] All vehicles in Regency’s fleet entered into Massachusetts during the tax period at issue and were stored or serviced in Massachusetts for some period of time.

The Commissioner of Revenue assessed use tax on the full purchase price of each tractor and trailer in Regency’s fleet. Regency made several arguments against the assessment, including that the assessment was unconstitutional because the use tax was not fairly apportioned to reflect Regency’s in-state activity as represented by its use of the Commonwealth’s roads. [3] However, the Supreme Court ruled that the tax was fairly apportioned.

In general, use taxes are imposed on the storage or use of property in a state and are typically applied when the property is purchased outside of that state (if the property was purchased in-state, then the state’s sales tax would be imposed). However, for property that is purchased and stored/used in multiple states, a credit is provided for sales/use taxes paid to other states. This credit provision meets the test for fair apportionment by preventing the property from being subject to multiple sales/use taxation. In this case, Massachusetts provides a credit for sales/use taxes paid to other taxes. However, since the property was not subject to sales tax or was exempt in the other states, no credit was available to be applied. The use tax was thus applied to the purchase price of the full fleet, since all fleet vehicles had been stored or used in Massachusetts and the state does not have a rolling stock exemption.

This case serves to remind us that sales and use taxes applied to property stored or used in more than one state are not apportioned in a manner similar to apportionment methodologies used for income tax filings. In other words, for sales of tangible property, the sales price is typically not divided up among the various states where such property will be used. Rather, the sales/use tax is by a state on the full purchase price (typically the state where the sale is made or where first use occurs), and other states allow a credit for taxes paid in order to prevent the property from being subject to double taxation. However, in instances where sales tax is not applied or the property is exempted in the other states, the full tax will remain. [4]

The SALT group at Aprio is experienced with the sales and use tax treatment of property used in multiple state and is available to assist you in reviewing your transactions to identify the proper sales/use tax treatment. We constantly strive to keep our clients advised of important issues and developments in state and local taxes in order to help them address their specific tax situations. We will continue to monitor these and other significant SALT developments and include them in future issues of the Aprio SALT Newsletter.

Contact Tina Chunn, SALT senior manager, at or Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at for more information.

This article was featured in the February 2016 SALT Newsletter. To view the newsletter, click here.

[1] MA Supreme Judicial Court No. SJC-11873, 473 Mass. 459 (Jan. 6, 2016).

[2] Massachusetts does not have an exemption for vehicles engaged in interstate commerce.

[3] In the case of Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 281 (1977), the United States Supreme Court held that for a state tax to be valid under the Commerce Clause of the United States Constitution, the tax must (1) be applied to an activity with substantial nexus with the taxing state, (2) be fairly apportioned, (3) not discriminate against interstate commerce and (4) be fairly related to the services provided by the state.

[4] Partial use tax may also be due where the sales tax rate in the state of purchase is less than the use tax rate in the state of use. For example, if you purchase an item for $100 in a neighboring state with a sales tax rate of six percent (and thus, pay $106), and then bring that item home to use in your resident state that has an eight percent tax rate, you will owe an extra $2 of use tax to your home state.

[5] 20 NYCRR § 528.13(c)(4)

[6] 20 NYCRR § 528.13(b)(1)

[7] Tax Law § 1115(a)(10)

[8] 20 NYCRR § 528.11(b)

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding this matter.