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Commissioner of Revenue v. J.C. Penney Co., Inc., 431 Mass. 684, 730 N.E.2d 266

Facts

J.C. Penney Company, a Delaware corporation with its principal place of business in Texas, operated retail stores in all fifty states, including ten in Massachusetts. Between 1991 and 1993, the company mailed catalogs from out-of-state locations to Massachusetts residents to solicit mail order purchases. The catalogs were printed in Indiana, South Carolina, and Wisconsin, and were mailed via the United States Postal Service. The taxpayer paid the use tax on these catalogs but later sought an abatement after an audit revealed unpaid taxes on the value of the catalogs mailed to Massachusetts residents.

The taxpayer, a Delaware corporation with its principal place of business in Plano, Texas, is engaged in the business of retail merchandising. During the relevant tax periods, it operated retail stores in all fifty States, including ten stores in Massachusetts, and a direct mail catalog business, which it administered separately from the retail store division.

Issue

Whether the term 'use' in the Massachusetts use tax statute encompasses a taxpayer's distribution of merchandise catalogs to Massachusetts addressees by means of interstate mail for the purpose of soliciting retail business.

The sole question presented by this appeal is whether the term 'use' in G.L. c. 64I, § 2, as defined in G.L. c. 64I, § 1, encompasses a taxpayer's distribution of merchandise catalogs to Massachusetts addressees by means of interstate mail for the purpose of soliciting retail business.

Rule

The use tax statute imposes an excise tax on the storage, use, or other consumption of tangible personal property within the Commonwealth, and 'use' is defined to include the exercise of any right or power over tangible personal property incident to ownership.

General Laws c. 64I, § 2, imposes an excise tax, at the rate of five per cent, on 'the storage, use or other consumption in the [C]ommonwealth of tangible personal property or services purchased from any vendor for storage, use, or other consumption within the [C]ommonwealth.' 'Use' is defined, in relevant part, to 'mean and include … the exercise of any right or power over tangible personal property incident to the ownership of that property, except that it does not include the sale of that property in the regular course of business.'

Analysis

The court determined that J.C. Penney exercised substantive rights and powers over the catalogs by directing their delivery to Massachusetts residents, thereby constituting a taxable 'use' of the catalogs in the Commonwealth. The court rejected the Appellate Tax Board's reasoning that the taxpayer's activities did not occur in Massachusetts, emphasizing that the taxpayer's control over the catalogs was sufficient to establish a taxable use.

It is apparent from the board's findings that the taxpayer, even though it did not itself physically possess the catalogs in Massachusetts, nevertheless exercised substantive rights and powers over the catalogs in the Commonwealth by effectuating their delivery to Massachusetts addressees.

Conclusion

The court reversed the Appellate Tax Board's decision, concluding that J.C. Penney's distribution of catalogs to Massachusetts residents constituted a taxable use under the Massachusetts use tax statute.

Accordingly, the taxpayer has not met its burden of proving that it is entitled to an abatement of the use tax assessed on its direct mail catalogs.

Who won?

The Commissioner of Revenue prevailed in the case because the court found that the distribution of catalogs constituted a taxable use under the law.

The court concluded that the term 'use' in G.L. c. 64I, § 2, encompasses such a commercial utilization of direct mail catalogs and like promotional materials to conduct business in Massachusetts markets.

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