HFA member wins ‘tax holiday’ victory for customers

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With millions of dollars at stake, Jordan’s Furniture won a resounding legal victory last month. A Massachusetts Appeals Court panel ruled unanimously against a sales-tax claim by the state’s revenue commissioner.

The case stemmed from sales-tax holiday weekends in 2010, 2011 and 2012. The legislature created the holidays to stimulate retail sales by waiving the tax on purchases of personal property costing $2,500 or less on the designated days. The holidays allowed huge cost savings for customers. Purchases qualified if payment in full or transfer of possession occurred on the holiday weekend.

Jordan’s, a Home Furnishings Association member based in East Taunton with several Massachusetts stores, for many years “had a generous cancellation policy of allowing cancellation of orders at any time prior to pickup or delivery,” the court noted in its opinion. “Special orders were allowed to be canceled even to take advantage of internal promotions that occurred after a special order was placed.”

Savvy customers took advantage of this policy to cancel orders made earlier and shift them to sales-tax holiday weekends. In response, Jordan’s created special software to facilitate the cancellation and rewriting of orders. This helped Jordan’s customers realize the savings they were entitled to claim.

Revenue commissioner demanded millions of dollars

When the Department of Revenue conducted an audit, however, it contended that Jordan’s should have assessed sales taxes on all rewritten orders on those weekends over a period of three years. It declared that Jordan’s owed a total of $1,684,110 in taxes – and it added a penalty of $2,646,757.

Jordan’s filed an application for abatement to the revenue commissioner, who denied it. It then appealed to the Appellate Tax Board, which ruled in Jordan’s favor. Simply, the board found that Jordan’s practice of voiding prior orders and rewriting them didn’t violate the sales-tax law in any way.

The revenue commissioner nevertheless took the case to the Massachusetts Appeals Court – which rendered an even more powerful verdict.

“In the absence of language in the statute that prohibited Jordan’s from complying with its longstanding return policy and allowing cancellation of orders prior to delivery, we agree with the board that Jordan’s practices did not violate the statutes,” the court said. “Jordan’s did not predate or postdate any sales.”

Jordan’s followed the law, appeals court said

The court went further, refuting the revenue commissioner’s interpretation of the law.

“The commissioner contends the Legislature clearly intended to avoid the result here,” the judges wrote. “We disagree. Rather, we agree with the board that Jordan’s instituted reasonable procedures that honored its longstanding cancellation policy of furniture orders and the sales tax holiday legislation applicable to prior sales.”

Ryan Kearney, general counsel for the Retailers Association of Massachusetts, said the Appeals Court ruling was “certainly welcomed but, in speaking with my tax expert, it will not hold much significance going forward. The underlying case is eight years old, and during that time the law and rules governing the sales-tax holiday have been rewritten.”

Perhaps. But when a business stands its ground to save money for its customers, a victory like this is highly significant. Customers should take note.

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