Paul T. Zekos v. Commissioner of Revenue (May 2, 2002)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD


PAUL T. ZEKOS				v.	COMMISSIONER OF REVENUE

Docket No. C256053				Promulgated:
							May 2, 2002


	This is an appeal filed under the formal procedure pursuant to G.L. c. 62C, § 39 from the refusal of the Commissioner of Revenue to abate sales tax for the periods January 1, 1994 through February 28, 1999.
	Commissioner Rose heard the appeal and was joined in the decision for the appellant by Chairman Burns and Commissioners Scharaffa, Gorton and Egan.
	These findings of fact and report are issued pursuant to a request by the appellee in accordance with G.L. c. 58A, § 13 and 831 CMR 1.32.

Richard L. Wulsin, Esq., for the appellant.
Lisa S. Mediano, Esq., for the appellee.


FINDINGS OF FACT AND REPORT
	Based on an Agreed Statement of Facts together with testimony and exhibits offered at the hearing, the Appellate Tax Board ("Board") made the following findings of fact.
Paul T. Zekos ("the appellant") is a licensed auctioneer in the Commonwealth.  During the periods at issue, the appellant conducted both commercial auctions on behalf of for-profit entities and auctions for various charitable organizations.  The appellant collected and remitted sales tax on sales made at the commercial auctions but did not collect or remit sales tax on sales made at the charity auctions because he believed that such sales were exempt from taxation.  Pursuant to an audit of the appellant's business records, the Commissioner issued a Notice of Intention to Assess ("NIA"), dated October 18, 1998, for the tax periods ended March 31, 1994 through June 30, 1996. On November 16, 1998, the appellant executed a Special Consent extending the Commissioner's time to assess sales taxes for these periods.  On April 7, 1999, the Commissioner issued a second NIA, this one for the tax periods ended January 31, 1998 through February 28, 1999.
The appellant requested a pre-assessment conference that was held on February 4, 1999.  Subsequent to the conference, the Commissioner issued a Letter of Determination in which he upheld the assessments. By Notice of Assessment ("NOA") dated June 22, 1999, the Commissioner notified the appellant that he had assessed additional sales taxes in the amount of $9,870.00 for the tax periods ended January 31, 1998 through February 28, 1999.  By a second NOA dated July 21, 1999, the Commissioner notified the appellant of an additional sales tax assessment of $12,198.07 for the tax periods ended March 31, 1994 through June 30, 1996.  Both assessments were based solely on the sales made at the charity auctions.   
On or about January 11, 2000, the appellant filed an application for abatement which was denied by the Commissioner on April 21, 2000.  Subsequently, on May 1, 2000, the appellant timely filed an appeal with the Board.  Based on the foregoing, the Board found that it had jurisdiction over the subject appeal.
The appellant is a Massachusetts licensed auctioneer subject to the provisions of Massachusetts G.L. c. 100.  Mr. Zekos testified about the different roles he plays in a charity auction as contrasted with a commercial auction.  Regarding the commercial auctions, Mr. Zekos testified that if the auction property was larger equipment, or involved a large number of goods, such as a business liquidation, the auction would generally occur at the client's business premises.  In those instances, the appellant would first obtain a key to the property and would sometimes change the locks so as to limit access to the auction property.  If, however, the auction property consisted of smaller items, such as an antique or estate sale, the property would be removed to the appellant's auction facility.  
In either situation, after the appellant had taken control of the property to be auctioned, he would prepare an inventory of all items, arrange them in an orderly and identifiable way, and "tag" the items by reference to their inventory number.  He would then compile an "auction listing" which lists by number and identification all of the items to be sold.  Mr. Zekos would also prepare the advertisements to be placed with various publications as well as a brochure that would be mailed to certain individuals known by the appellant to be interested in commercial auctions.
On the day of the auction, the appellant would hold a "preview time" where potential buyers would be allowed to inspect the various items and to ask questions.  Also at this time, bidders would register with the appellant and receive their bid numbers.  In some instances, the appellant would receive a deposit from the bidders, which would later be returned if no purchases were made.  
At the completion of the bidding process, buyers would make payment for their purchases directly to the appellant.  The appellant would then remit to the commercial client the net sale price for the goods after deducting any costs and commissions owed to the appellant and the applicable sales tax.  Buyers would generally take their purchases with them after making full payment to Mr. Zekos.  With respect to the larger items, however, the buyers might make arrangements with the appellant for pick-up at a later date.  Mr. Zekos testified that at these commercial type auctions he would collect and remit to the Commonwealth the applicable sales tax.
Mr. Zekos also testified that on occasion he would act as a "contractor" for another auction company and conduct only the bidding process.  He testified that in those situations he did not take possession of the items to be auctioned, did none of the prepatory work, and did not accept payment for the goods.  Instead, the company that hired Mr. Zekos would perform these functions.  The hiring company would also collect and remit the sales tax.  
Throughout the tax periods at issue, Mr. Zekos also performed auctions for various charitable organizations as part of their fundraising efforts.  Mr. Zekos testified that during the more than five years at issue, he conducted approximately twenty-five charitable auctions and that no charitable organization held more than two auctions in any given calendar year.  
Mr. Zekos testified that similar to the instances where he acted as a contractor for other auction companies, his functions at the charity auctions were very limited.  The charitable organization, not the appellant, was responsible for: acquiring the goods to be sold, typically through donations made directly to the charity; preparing an inventory; tagging the items; arranging the items for display; advertising and printing the promotional materials; selling tickets; making arrangements for the auction location; registering bidders; receiving payment for the purchases; and making delivery to the purchasers.  On occasion, Mr. Zekos would consult with the charity to offer suggestions and comments as to the most effective way to organize the auction.  Occassionally, the appellant's employees would assist a charity in registering the bidders.  At the completion of the auction, the charity was responsible for delivering the goods to the purchasers.  Also, the charity would collect and keep all proceeds from the sales and pay over to the appellant only his compensation for services rendered.    
Based on the evidence, the Board found that at no time -- prior to, during, or after the auction -- did the appellant ever have title to or possession of the goods to be sold and therefore made no "sale" of the goods for purposes of G.L. c. 64H, §§ 1 and 2.  The Board further found that the appellant did not receive gross receipts from the sale of the auction goods and that the appellant was not a "vendor" of those goods within the meaning of §§ 1 and 2.  Therefore, the Board found that the appellant was not liable for collection and remittance of the sales tax.  
Instead, the Board found, for the reasons explained in the following Opinion, that the charitable organizations made the "sales" at issue.  The Board further found that the sales made by each charitable organization were infrequent and nonrecurring and that the charitable organizations were not engaged in the business of selling tangible personal property.  Therefore, the charitable organizations' sales at auction were "casual and isolated" sales within the meaning of G.L. c. 64H, § 6(c).   Accordingly, the Board found that the sales by the charitable organizations were not subject to the sales tax.
  The Board entered a decision for the appellant and granted an abatement in the amount of $22,068.07, plus statutory additions.  
OPINION
Massachusetts imposes a sales tax on "sales at retail in the commonwealth, by any vendor, of tangible personal property."  G.L. c. 64H, § 2 (emphasis added).  The excise is calculated at the "rate of five percent of the gross receipts of the vendor from all such sales of such property."  Id. (emphasis added).  Although an auctioneer is expressly designated a "retailer" for sales tax purposes (G.L. c. 64H, § 1), the sales tax obligation falls only on a "vendor," defined as "a retailer or other person selling tangible personal property . . . of a kind the gross receipts from the retail sale of which are required to be included in the measure of the tax imposed by this chapter."  G.L. c. 64H, § 1.  Accordingly, in order for the gross receipts of the charity auction sales to be subject to the sales tax, the sales must be made by a "vendor."
The parties do not dispute the fact that the charity auction sales at issue were sales at retail of tangible personal property in the Commonwealth and that the appellant was an auctioneer, and consequently a retailer, pursuant to G.L. c. 64H, § 1.  The issue is whether the appellant was the "vendor" of the property sold at the charitable auctions and, therefore, liable for collection and remittance of the sales tax on his gross receipts from such sales.
In Sherman v. Commissioner of Revenue, 24 Mass. App. Ct. 64, 66 (1987) the Appeals Court found that "the definition [of vendor] has a circular quality but serves to focus the inquiry on who, in the prototypical transaction, is doing the selling."  A "sale" occurs any time there is a "transfer of title or possession . . . of tangible personal property . . . for a consideration."  G.L. c. 64H, § 1.  "Absence of title or possession [is] thought decisive" in determining that a taxpayer is not a "seller" of the personal property in question.  Sherman, 24 Mass. App. Ct. at 66 (citing Hitchcock v. Emergency Lighting & Sys., Inc., 12 Mass. App. Ct. 930 (1981)).  The Court further held that receipt of compensation and responsibility for the quality of the goods are other considerations in identifying the seller.  Id.  
In Sherman, the taxpayer provided services which included assembling, cleaning, displaying and tagging items that were to be sold by the homeowner at a yard sale.  However, the Court found that the taxpayer never took title to or possession of the goods to be sold.  Sherman, 24 Mass. App. Ct. at 67.  As such, it was the homeowner, not the taxpayer, who delivered the goods to the purchasers and guaranteed their condition and quality.  Id.  Also, the proceeds from the sales flowed directly to the homeowner and the only money received by the taxpayer was compensation for her services.  Id.  Based on these factors, the Appeals Court concluded that the taxpayer was "not a vendor within the meaning of the statute and, therefore, [was] not liable for sales tax."  Sherman, 12 Mass. App. Ct. at 67.
	The facts in the present appeal are similar to those in Sherman.  The Board found that the charitable organization was responsible for acquiring the items to be sold at auction and that the appellant never held either title to or possession of the goods to be sold.  All sales proceeds were paid directly to the charity which, in turn, paid the appellant only for his services rendered.  Accordingly, the appellant had no "gross receipts" from the sale of the property at issue.  Also, it was the charity that delivered the goods to the purchaser and addressed any subsequent issues concerning the goods purchased.  Accordingly, based on the evidence presented, the Board found and ruled that the appellant did not sell the goods in question and, therefore, was not a "vendor" within the meaning of G.L. c. 64H, § 1.
	The Appeals Court noted that, unlike the facilitator at issue in Sherman, "an auctioneer is expressly designated a 'retailer' by statute for sales tax purposes."  Sherman, 24 Mass. App. Ct. at 67, citing G.L. c. 64H, § 1(9)(b) & (c).  However, although the appellant may be a retailer, he must still sell the goods in question, receive gross receipts from the sale, and be a "vendor", and not merely a retailer, in order to be responsible for collection and remission of the sales tax.  
	Based on the evidence presented, the Board found and ruled that the appellant was not a "vendor" for purposes of G.L. c. 64H, § 1 when he performed auction services for the charitable organization sales at issue in this appeal.  Instead, the Board found that the entities making the sales of the auctioned property were the various charitable organizations that held and then transferred title to and possession of the auction goods.  However, G.L. c. 64H, § 6(c) provides an exemption from the sales tax for "casual and isolated sales by a vendor who is not regularly engaged in the business of making sales at retail."  The Commissioner's regulation, as in effect for the tax periods at issue, defined the phrase "casual and isolated" as those of "an infrequent, nonrecurring nature made by a person not engaged in the business of selling tangible personal property."  830 CMR 64H.6.1(2).  In Our Lady of Mt. Carmel v. Commissioner of Revenue, the Board ruled that "whether a given taxpayer and its sales activities fit these descriptors [830 CMR 64H.6.1] is a matter of fact."  24 Mass. App. Tax Bd. Rep. 135, 137 (1998).  In the present appeal, the Board found that although the charitable organizations sold the auction goods, they were not engaged in the business of selling tangible personal property, and that such sales qualified as nonrecurring and infrequent.  Id.  Accordingly, the Board found that the auction sales made by the charitable organizations were exempt from taxation in accordance with G. L. c. 64H, § 6(c).
	In support of the assessments, the Commissioner cites G.L. c. 100, § 8, which provides that a licensed auctioneer "shall be responsible for the reporting and collection of sales and use taxes for all sales made by him."  However, the sales at issue were not "made by" the appellant.  Rather, the sales were "made by" the charities, under circumstances which render the sales exempt from sales tax as casual and isolated sales.  G.L. c. 100 § 8 cannot impose a reporting and collection responsibility where no sales tax is due.  Further, § 8 cannot be read to subject sales to tax which are not subject to tax pursuant to G.L. c. 64H.  Because the charity auction sales at issue are not subject to sales tax, § 8 does not impose a sales tax reporting and payment obligation on the appellant.  
Based on the evidence presented, the Board found and ruled that the appellant was not a "vendor" within the meaning of G.L. c. 64H, §§ 1 and 2 and had no "gross receipts" from retail sales subject to sales tax.  Therefore, he was not liable for collection and remittance of sales tax.  The Board further found and ruled that the charitable organizations were the vendors but that such sales were exempt from taxation as "casual and isolated" pursuant to G.L. c. 64H, § 6.  Accordingly, the Board granted an abatement in the amount of $22,068.07, plus statutory additions.  

					   APPELLATE TAX BOARD

					By:			______		
					   Abigail A. Burns, Chairman

A true copy,

Attest:					
   	  	Clerk of the Board

	

ATB 2002-251