A wholesale company (taxpayer) was liable for collecting and remitting Massachusetts sales tax on products it sold to out-of-state retailers and delivered to their Massachusetts consumers. Under Massachusetts’ drop shipment rule, if a wholesale supplier is engaged in business in the Commonwealth, but the retailer is not, the wholesale supplier is required to collect and remit the sales tax due on the final sale to the consumer.
In the transactions at issue, Massachusetts customers ordered products from an out-of-state retailer. The retailer then purchased these products from the taxpayer. The taxpayer shipped the products to the Massachusetts customers on behalf of the out-of-state retailer. On audit, the Department of Revenue, assessed additional tax, interest, and penalties against the taxpayer.
The taxpayer argued that, before the department could assess sales tax against a wholesale deliverer of retail goods under the drop shipment rule, the department should establish that the retailer did not do business in Massachusetts. However, the department noted that, since the taxpayer had all the relevant information, it could have made a list of drop shipment transactions disclosing the retailers that were not registered as Massachusetts vendors.
In addition, the taxpayer had the burden of proving the assessment wrong but had provided no evidence to refute it. Further, since the transactions with both in-state and out-of-state retailers were equally subject to tax, the taxpayer’s argument that there was a greater burden on interstate transactions in violation of the dormant commerce clause was rejected.
D & H Distributing Company v. Commissioner of Revenue, Massachusetts Supreme Judicial Court, No. SJC-12260, July 31, 2017, ¶401-628