Rejecting the Massachusetts Commissioner of Revenue’s Position That, Under the Massachusetts Sales Tax Statutes, a Purchaser of Goods Who Believes She Has Been Erroneously Charged A Sales Tax May Sue a Vendor For Breach of Contract To Recover The Amount Paid
This case arises from litigation related to the long-running dispute between Dell (the plaintiff in this case is a Dell subsidiary) and Massachusetts purchasers of Dell computers who allege allege that Dell improperly charged them a Massachusetts sales tax on service contracts that they purchased with their Dell computers. Initially, the purchasers attempted to bring a Mass. G.L. c. 93A class action in the Massachusetts courts. NELF was heavily involved in supporting Dell’s eventually successful arguments before the Massachusetts Supreme Judicial Court that the dispute was subject to the service contracts’ mandatory arbitration provision and class action waiver. Accordingly, the case was ordered to arbitration on an individual basis, and Dell prevailed before the arbitrator.
While the challenge to Dell’s collection of sales taxes was pending in court and, then, in arbitration, Dell, as a protective measure, applied to the Massachusetts Department of Revenue (“DOR”) for an abatement of the disputed sales taxes so that, if it lost on the merits, it would have funds to pay back the sales taxes it had collected. (This was done because, as required under Massachusetts law, Dell had already remitted to the Department of Revenue the disputed sales taxes that it had collected from its purchasers.) When the DOR denied the abatement request, Dell appealed that decision to the Massachusetts Appellate Tax Board (“ATB”). While Dell’s appeal was pending before the ATB, one of the plaintiffs in the c. 93A action, Econo-Tennis Management Corporation, d/b/a Dedham Health and Athletic Complex (“Dedham”), successfully intervened in the ATB appeal. The ATB issued a preliminary decision finding that the sales tax had been wrongly collected by Dell.
Dell, having won in the arbitration, moved to dismiss its ATB appeal, with which motion the DOR concurred. The ATB dismissed the appeal over Dedham’s objection.
The central issue before the Massachusetts court in this appeal is whether the ATB was correct in dismissing Dell’s appeals, even though Dedham objected.
NELF’s participation was requested because the DOR, in its brief supporting the dismissal of the cases, argued that, even if the ATB appeals were dismissed, Dedham still had a remedy. The DOR claimed that Dedham had a statutory right to sue Dell for the improper sales tax under a theory of breach of contract. Dell’s attorneys asked NELF to file an amicus brief disputing the DOR’s position on this issue.
In its amicus brief, NELFargued that neither the Massachusetts sales tax statutes nor the common law of agency authorizes a purchaser to sue a vendor to recover an allegedly erroneous sales tax, which the vendor has collected as an agent of the Commonwealth. Nowhere does the relevant provision of the sales tax code, G. L. c. 64H, § 3(a),[1] mention or even suggest any right of action by the purchaser against the vendor. By contrast, the plain language of § 3(a) protects the rights of the vendor, not the purchaser. Section 3(a) requires the purchaser to reimburse the vendor for the sales tax that the vendor must pay to the Commonwealth under § 2 of the same statute. Simply put, the sales tax statute establishes the respective obligations of the vendor and the purchaser in the payment of a sales tax to the Commonwealth. The statute creates a steady stream of revenue flowing from the purchaser through the vendor to the Commonwealth, and nothing more.
Indeed, the SJC recognized in an earlier stage of this very case that the sales tax statute places the vendor in the role of the Commonwealth’s agent or trustee, for the purpose of collecting a sales tax from the purchaser and remitting it to the Commonwealth, as Dell has done here. See Feeney v. Dell Inc., 454 Mass. 192, 213 (2009) (“[V]endors who, on behalf of the Commonwealth, compute, collect, and file sales tax returns, and remit full sales tax for each customer transaction[,] serve as trustees for the Commonwealth’s retail sales taxes . . . .”) (citation and internal quotation marks omitted). Moreover, the Department of Revenue in this case expressly instructed Dell that, based on the Department’s own regulation, Dell had the duty to collect the disputed sales tax.
Under these circumstances, it is black letter law that Dell, as an agent acting on behalf of the Commonwealth, the known principal, cannot be held liable for any acts performed within the scope of its authority. This foundational principle of agency law recognizes that Dell acted merely as a conduit between the purchaser and the Commonwealth, for the purpose of delivering the sales tax to the Commonwealth. Therefore, any dispute over this tax collection is between the Commonwealth (the principal) and the purchaser (the third party).
NELF also argued that adoption of the DOR’s position would contravene the purposes of the tax statutes and would lead to untenable results. In particular, permitting purchasers to sue vendors every time there is a sales tax dispute would contravene the basic purpose of the sales tax statute, which is to secure a reliable stream of revenue for the Commonwealth. Recognizing such a right of action would actually encourage vendors to under-collect a sales tax whenever the tax law is unclear (a not infrequent occurrence), to avoid their potential exposure to civil liability. As a result, the Commonwealth could suffer a decrease in the amount of sales tax collected. And vendors would be forced to make the impossible choice of incurring either state penalties for under-collection or civil liability for over-collection. The Legislature could not have intended such absurd and draconian results.
In addition, the Commissioner’s position would create the untenable result of allowing purchasers to sue vendors over a sales tax after the expiration of the time period for seeking an abatement of the sales tax. Specifically, an application for abatement must be made within one to three years of the disputed tax assessment, under G. L. c. 62C, § 37. Under the Commissioner’s approach, however, a purchaser would have four or six years to sue the vendor over the validity of the same sales tax. See G. L. c. 106, § 2-725(1)(four-year statute of limitations for sale of goods); G. L. c. 260, § 2 (six-year statute of limitation for express or implied contract claim). As a result, a vendor could be exposed to liability over a sales tax long after the vendor’s right to recoup the sales taxes from the Commonwealth has expired.
And finally, the Commissioner’s position would allow a court to decide in the first instance whether a tax abatement is due. This would deprive both DOR and the ATB of their primary jurisdiction to decide such tax issues.
[1] That section of the sales tax statute provides, in relevant part:
[R]eimbursement for the [sales] tax hereby imposed [on the vendor under G. L. c. 64H, § 2] shall be paid by the purchaser to the vendor . . . and such tax shall be a debt from the purchaser to the vendor, when so added to the sales price, and shall be recoverable at law in the same manner as other debts.
G. L. c. 64H, § 3(a).
This case arises from litigation related to the long-running dispute between Dell (the plaintiff in this case is a Dell subsidiary) and Massachusetts purchasers of Dell computers who allege allege that Dell improperly charged them a Massachusetts sales tax on service contracts that they purchased with their Dell computers. Initially, the purchasers attempted to bring a Mass. G.L. c. 93A class action in the Massachusetts courts. NELF was heavily involved in supporting Dell’s eventually successful arguments before the Massachusetts Supreme Judicial Court that the dispute was subject to the service contracts’ mandatory arbitration provision and class action waiver. Accordingly, the case was ordered to arbitration on an individual basis, and Dell prevailed before the arbitrator.
While the challenge to Dell’s collection of sales taxes was pending in court and, then, in arbitration, Dell, as a protective measure, applied to the Massachusetts Department of Revenue (“DOR”) for an abatement of the disputed sales taxes so that, if it lost on the merits, it would have funds to pay back the sales taxes it had collected. (This was done because, as required under Massachusetts law, Dell had already remitted to the Department of Revenue the disputed sales taxes that it had collected from its purchasers.) When the DOR denied the abatement request, Dell appealed that decision to the Massachusetts Appellate Tax Board (“ATB”). While Dell’s appeal was pending before the ATB, one of the plaintiffs in the c. 93A action, Econo-Tennis Management Corporation, d/b/a Dedham Health and Athletic Complex (“Dedham”), successfully intervened in the ATB appeal. The ATB issued a preliminary decision finding that the sales tax had been wrongly collected by Dell.
Dell, having won in the arbitration, moved to dismiss its ATB appeal, with which motion the DOR concurred. The ATB dismissed the appeal over Dedham’s objection.
The central issue before the Massachusetts court in this appeal is whether the ATB was correct in dismissing Dell’s appeals, even though Dedham objected.
NELF’s participation was requested because the DOR, in its brief supporting the dismissal of the cases, argued that, even if the ATB appeals were dismissed, Dedham still had a remedy. The DOR claimed that Dedham had a statutory right to sue Dell for the improper sales tax under a theory of breach of contract. Dell’s attorneys asked NELF to file an amicus brief disputing the DOR’s position on this issue.
In its amicus brief, NELFargued that neither the Massachusetts sales tax statutes nor the common law of agency authorizes a purchaser to sue a vendor to recover an allegedly erroneous sales tax, which the vendor has collected as an agent of the Commonwealth. Nowhere does the relevant provision of the sales tax code, G. L. c. 64H, § 3(a),[1] mention or even suggest any right of action by the purchaser against the vendor. By contrast, the plain language of § 3(a) protects the rights of the vendor, not the purchaser. Section 3(a) requires the purchaser to reimburse the vendor for the sales tax that the vendor must pay to the Commonwealth under § 2 of the same statute. Simply put, the sales tax statute establishes the respective obligations of the vendor and the purchaser in the payment of a sales tax to the Commonwealth. The statute creates a steady stream of revenue flowing from the purchaser through the vendor to the Commonwealth, and nothing more.
Indeed, the SJC recognized in an earlier stage of this very case that the sales tax statute places the vendor in the role of the Commonwealth’s agent or trustee, for the purpose of collecting a sales tax from the purchaser and remitting it to the Commonwealth, as Dell has done here. See Feeney v. Dell Inc., 454 Mass. 192, 213 (2009) (“[V]endors who, on behalf of the Commonwealth, compute, collect, and file sales tax returns, and remit full sales tax for each customer transaction[,] serve as trustees for the Commonwealth’s retail sales taxes . . . .”) (citation and internal quotation marks omitted). Moreover, the Department of Revenue in this case expressly instructed Dell that, based on the Department’s own regulation, Dell had the duty to collect the disputed sales tax.
Under these circumstances, it is black letter law that Dell, as an agent acting on behalf of the Commonwealth, the known principal, cannot be held liable for any acts performed within the scope of its authority. This foundational principle of agency law recognizes that Dell acted merely as a conduit between the purchaser and the Commonwealth, for the purpose of delivering the sales tax to the Commonwealth. Therefore, any dispute over this tax collection is between the Commonwealth (the principal) and the purchaser (the third party).
NELF also argued that adoption of the DOR’s position would contravene the purposes of the tax statutes and would lead to untenable results. In particular, permitting purchasers to sue vendors every time there is a sales tax dispute would contravene the basic purpose of the sales tax statute, which is to secure a reliable stream of revenue for the Commonwealth. Recognizing such a right of action would actually encourage vendors to under-collect a sales tax whenever the tax law is unclear (a not infrequent occurrence), to avoid their potential exposure to civil liability. As a result, the Commonwealth could suffer a decrease in the amount of sales tax collected. And vendors would be forced to make the impossible choice of incurring either state penalties for under-collection or civil liability for over-collection. The Legislature could not have intended such absurd and draconian results.
In addition, the Commissioner’s position would create the untenable result of allowing purchasers to sue vendors over a sales tax after the expiration of the time period for seeking an abatement of the sales tax. Specifically, an application for abatement must be made within one to three years of the disputed tax assessment, under G. L. c. 62C, § 37. Under the Commissioner’s approach, however, a purchaser would have four or six years to sue the vendor over the validity of the same sales tax. See G. L. c. 106, § 2-725(1)(four-year statute of limitations for sale of goods); G. L. c. 260, § 2 (six-year statute of limitation for express or implied contract claim). As a result, a vendor could be exposed to liability over a sales tax long after the vendor’s right to recoup the sales taxes from the Commonwealth has expired.
And finally, the Commissioner’s position would allow a court to decide in the first instance whether a tax abatement is due. This would deprive both DOR and the ATB of their primary jurisdiction to decide such tax issues.
[1] That section of the sales tax statute provides, in relevant part:
[R]eimbursement for the [sales] tax hereby imposed [on the vendor under G. L. c. 64H, § 2] shall be paid by the purchaser to the vendor . . . and such tax shall be a debt from the purchaser to the vendor, when so added to the sales price, and shall be recoverable at law in the same manner as other debts.
G. L. c. 64H, § 3(a).
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