Frederick Brodsky v. Commissioner of Revenue (April 12, 2016)

  COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD


FREDERICK BRODSKY			v.	   COMMISSIONER OF REVENUE
				   						
					
Docket No. C322186			 	   Promulgated:
							   April 12, 2016

This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 39, from the refusal of the Commissioner of Revenue ("appellee" or "Commissioner"), to abate use tax, along with related interest and penalties, assessed against the appellant, Frederick Brodsky ("appellant" or "Mr. Brodsky"), on his storage and use in Massachusetts of a sailing vessel beginning in May of 2009.
Commissioner Good heard this appeal. Chairman Hammond and Commissioners Scharaffa, Rose, and Chmielinski joined her in the decision for the appellee.  
	These findings of fact and report are made pursuant to requests by both the appellant and appellee under G.L. c. 58A, § 13 and 831 CMR 1.32.

Randall T. Weeks, Jr., Esq. and Timothy D. Wegner, Esq. for the appellant.

	Jamie Szal, Esq. and Marikae G. Toye, Esq. for the appellee. 


FINDINGS OF FACT AND REPORT
	On the basis of all of the evidence, including the testimony of the appellant, who was the sole witness at the hearing of this appeal, and the parties' Agreed Statement of Facts with exhibits, the Appellate Tax Board ("Board") made the following findings of fact.
PROCEDURAL HISTORY AND JURISDICTION
	Prior to and during the period relevant to this appeal, appellant Frederick Brodsky and his wife, Darla, maintained a primary residence in Dallas, Texas.  However, they had a longstanding practice of coming to the Northeast seashore during the warmer months of the year.  Initially, the Brodskys rented vacation homes in Maine and Cape Cod, but in September of 2003, they purchased a residence in Fairhaven, Massachusetts, which they have owned since.  Mr. Brodsky testified that they typically came to their Fairhaven home anywhere from May to July of each year and returned to their primary home in the fall, usually around mid-October.   
	The Brodskys were avid sailors.  In decades past, they owned a 60-foot sailboat called My Way, which was based out of the Caribbean and which they used to take extended sailing excursions. Subsequently, they acquired My Way Too, a 43-foot trawler boat equipped with a galley kitchen and sleeping quarters. My Way Too was moored in New Bedford, Massachusetts.  Mr. Brodsky sold My Way Too in mid-2009, after purchasing a 59-foot Symbol Pilothouse vessel ("Odyssey"), which is the vessel at issue in this appeal.  Odyssey was not purchased in Massachusetts but was later brought here, as discussed further below.  
	When Mr. Brodsky purchased Odyssey, it came equipped with a ten-foot 2003 Nautica tender ("Tender"), a small boat which was used to get to and from shore when Odyssey was at anchor. For reasons that are discussed in more detail below, Mr. Brodsky decided to sell Odyssey, together with Tender, in late 2010. According to documents entered into the record, during the process of selling Odyssey and Tender, it came to the buyer's attention that Tender had not been registered. The buyer requested that Tender be registered to provide proof of chain of title. 
	The evidence indicated that Mrs. Brodsky registered Tender at the Customer Service Bureau office of the Massachusetts Department of Revenue ("Department") on September 22, 2011, paying a Massachusetts use tax of $86.50 on the purchase price of Tender, plus $54.09 in penalties. According to the Assessment Narrative prepared by the Department's auditor, when Mrs. Brodsky submitted her paperwork for Tender, the examiner on duty also noticed documentation related to Odyssey, for which no use tax had been paid.  The Assessment Narrative, which was among the stipulated documents entered into the record, noted that when questioned about Odyssey, Mrs. Brodsky refused to answer and "covered the documents" relating to Odyssey. The examiner subsequently referred the matter to the Department's Boat Unit for audit.
	On March 30, 2012, the Commissioner issued a Notice of Failure to File a Return for the tax period ended May 31, 2009, the end of the first month that Odyssey was moored in Massachusetts. The appellant was issued a Notice of Assessment on April 4, 2013 assessing a use tax of $40,750, based on the original purchase price of $815,000, along with a $20,375 penalty for failure to file, and interest. The appellant filed an Application for Abatement on April 22, 2013, seeking full abatement of the tax and penalties, which was denied by the Commissioner by Notice of Abatement Determination dated February 11, 2014. On March 10, 2014, the appellant filed an appeal with the Board. Based on the foregoing, the Board found and ruled that it had jurisdiction to hear and decide this appeal.




THE APPELLANT'S PURCHASE AND USE OF ODYSSEY
	On November 5, 2008, Mr. Brodsky purchased Odyssey for a total consideration of $815,000.   Although Mr. Brodsky purchased Odyssey from a California vendor, he took possession of it in international waters off the coast of San Diego and sailed directly to Mexico.  Contemporaneous documents entered into the record showed that Mr. Brodsky structured the transfer this way deliberately to avoid incurring California sales or use tax, and he testified to this fact as well. Mr. Brodsky did not pay a sales or use tax to any jurisdiction in connection with his purchase or use of Odyssey.  
	It was during the trip to Mexico that Mr. Brodsky first experienced problems with Odyssey's functioning.  Even though Odyssey had been thoroughly inspected prior to his purchase, Mr. Brodsky stated that on the way from California to Mexico, they began to notice "intermittent electrical" problems.   
	After sailing Odyssey to Mexico, Mr. Brodsky arranged to have it shipped to Florida, where it arrived in December of 2008.  Mr. Brodsky secured a month-to-month slip lease for Odyssey at Harbour Towne Marina in Dania Beach. Mr. Brodsky testified that it had been his plan to permanently moor Odyssey in Florida, and that he had no intention of bringing Odyssey to Massachusetts at the time he purchased it, despite his longstanding practice of spending several months in Massachusetts each year.  He stated that it was very easy to drive or fly from Massachusetts to Florida to use the boat if they wished to go cruising during a time when they were typically in Massachusetts.  
	With Odyssey safely moored in Florida, Mr. Brodsky hired boat mechanics to look into the problems that had surfaced en route to Mexico.  Subsequent inspections revealed additional problems, including issues with the boat's hydraulics, air conditioning, and automatic identification system.  Invoices for the work performed on Odyssey during this time were introduced into evidence.  
	In February of 2009, the Brodskys departed on Odyssey for a cruise of the Bahamas. This tour lasted approximately three weeks, after which they arrived back in Florida.  During this cruise, they once again experienced problems with Odyssey's systems, including leaks as well as problems with the electronics, hydraulics, and stabilizer.  Again, Mr. Brodsky hired mechanics to conduct the necessary repairs on Odyssey. 
	Mr. Brodsky testified that in March of 2009, he became concerned that the repairs would not be completed by the time the Brodskys planned to depart for Massachusetts as they did each year.  Mr. Brodsky stated that it was important for him to be able to oversee the repairs performed on Odyssey because it was a new boat to him and he wanted to fully understand its mechanics and operation. Accordingly, Mr. Brodsky testified that he began thinking at that point of bringing the boat up to Massachusetts for the summer and having the remainder of the repairs performed there, where he could oversee them. 
	Mr. Brodsky testified that in March of 2009, he began contacting marinas within an hour of his Fairhaven home. On March 18, 2009, Mr. Brodsky signed a seasonal slip contract with Gear Locker Marina in New Bedford. Gear Locker Marina was the same marina where Mr. Brodsky had previously moored My Way Too.  
	  Mr. Brodsky testified that he left Florida aboard Odyssey on May 9, 2009, reaching Fairhaven on May 18, 2009, which was corroborated by credit card statements. Again, Mr. Brodsky arranged to have work performed on Odyssey, and several work orders and invoices for repairs performed on Odyssey in Massachusetts during the summer of 2009 were entered into the record.
	Odyssey made three voyages in the summer of 2009, which Mr. Brodsky characterized as "sea trials" designed to test the repairs. According to Odyssey's cruising log, on June 8, 2009, Mr. Brodsky, his dogs, and five companions sailed from New Bedford to Provincetown, Massachusetts. The next day, the Brodskys sailed from Provincetown to Marblehead, Massachusetts. On June 10, 2009, the Brodskys returned from Marblehead to New Bedford. From August 13, 2009 to August 22, 2009, the Brodskys sailed from New Bedford to Maine, stopping en route in Gloucester, Massachusetts. Finally, the Brodskys and two companions sailed Odyssey to Provincetown on September 19, 2009.  
	On November 2, 2009, the Brodskys sailed Odyssey back to Florida.  They again moored at Harbour Towne Marina, under a month-to-month slip lease arrangement.
 	In June of 2010, the Brodskys returned to Massachusetts, consistent with their longstanding seasonal practice of spending the warmer months at their Fairhaven home.  As he had in 2009, Mr. Brodsky sailed Odyssey to Massachusetts.  He testified that he brought Odyssey to Massachusetts in 2010 with the hope of cruising off the coast of Maine, and he did.  The evidence showed that the Brodskys took extended cruises off the coast of Maine during the summer that year.    In 2010, Odyssey was again moored at Gear Locker Marina.  
	However, during 2010, Odyssey continued to experience mechanical issues.  Mr. Brodsky testified that he became tired of these problems and made the decision to sell Odyssey. On October 12, 2010, the Brodskys brought Odyssey to Annapolis, Maryland, where it was stored until it was sold on September 22, 2011. Mr. Brodsky commissioned the building of a new 71-foot yacht, John Bow, which was completed and entered the water in 2012.  John Bow was also moored seasonally in New Bedford and used and stored in Massachusetts and elsewhere.  
THE BOARD'S CONCLUSIONS
	On the basis of all of the evidence, the Board found that Odyssey was stored and used in Massachusetts during the period relevant to this appeal and that Mr. Brodsky purchased Odyssey for storage and use in Massachusetts, among other places.  
	The Board did not find Mr. Brodsky's testimony with respect to his intentions for Odyssey to be credible, as it was inconsistent and contradicted by contemporaneous documents entered into the record.  Specifically, the Board rejected Mr. Brodsky's assertion that unexpected events - namely, the mechanical issues that arose following his purchase of Odyssey and his need to personally oversee the repairs - caused him to bring Odyssey to Massachusetts in 2009, contrary to his original plans.  
	First, the Board notes that the explanation offered by Mr. Brodsky during the hearing of this appeal for bringing Odyssey to Massachusetts was much narrower than the reasons stated in his Petition to the Board.  In that Petition, Mr. Brodsky cited the "exorbitant insurance costs to keep the Odyssey in Florida full time," along with the possibility of using a Massachusetts mooring as "a launching point to travel outside of Massachusetts" as reasons for bringing Odyssey to Massachusetts, in addition to the need to "undertake various repairs."  More importantly, the explanation offered by Mr. Brodsky at the hearing for bringing Odyssey to Massachusetts in 2009 was seriously undermined on cross-examination.  When questioned by counsel for the Commissioner, Mr. Brodsky conceded that he had not remained present in Florida to personally oversee the repairs being performed on Odyssey at that time.   
	It was clear from the record that Mr. Brodsky deliberately structured his acquisition of Odyssey in a way that allowed him to avoid paying a sales or use tax in California.  Despite his testimony that it had been his intent from the start to permanently moor Odyssey in Florida, the Board notes that he did not pay a use tax there either, or to any other jurisdiction in connection with his purchase or use of Odyssey, nor did he insure or document Odyssey in Florida. 
	Instead, the evidence showed that Mr. Brodsky obtained an insurance policy on Odyssey at the time of purchase which identified New Bedford, Massachusetts as its permanent mooring location. Mr. Brodsky testified that he did not intentionally name New Bedford as Odyssey's permanent mooring location on the insurance policy and that his insurance agent had done so without asking him.  In fact, he claimed to be unaware that New Bedford was the place of mooring listed in the insurance documents until he was preparing for the hearing of this appeal. 
	Mr. Brodsky's professed ignorance on this matter stood in contrast to his familiarity with other provisions in his insurance policy for Odyssey.  In particular, when questioned at the hearing, Mr. Brodsky demonstrated a thorough understanding of the expansive navigational limits set within the policy, which included the entire Atlantic and Gulf coast, from Newfoundland to Mexico, among other areas.   He testified that he specifically arranged for the extensive navigational limits and that he had to pay an additional premium for the expanded coverage.  The Board found it dubious that Mr. Brodsky would be so familiar with these aspects of his insurance policy but completely ignorant of the listed place of mooring.   
	Furthermore, Odyssey was documented with the United States Coast Guard on November 6, 2008, identifying Fairhaven, Massachusetts as its hailing port.  In addition to being emblazoned as the hailing port on the stern of Odyssey, Fairhaven was listed as the hailing port on Odyssey's certificate of documentation, required by the United States Department of Homeland Security, dated November 17, 2008. The Board found that these contemporaneous documents, including Odyssey's insurance policy, supported the conclusion that it was Mr. Brodsky's intent at the time of Odyssey's purchase to store and use Odyssey in Massachusetts.  
	The Board found that the record contradicted Mr. Brodsky's claim that bringing Odyssey to Massachusetts in 2009 was an unforeseen event, precipitated by the unexpected need to oversee additional repairs.  Instead, the Board found that bringing Odyssey to Massachusetts was consistent with the Brodskys' established pattern of storing and using boats in Massachusetts, first with My Way Too, then with Odyssey, and later with John Bow.  Moreover, despite his claim that bringing Odyssey to Massachusetts in 2009 was an anomaly, Mr. Brodsky brought Odyssey back to Massachusetts in 2010, for the admitted purpose of taking extended cruises off of the Northeast coast.  	In fact, evidence was entered into the record to suggest that Mr. Brodsky had been hoping to use a large vessel in Massachusetts as early as 2008.  The Commissioner entered into the record a copy of a letter to the editor of a local newspaper, written by Mr. Brodsky in 2013, in which he stated that he had placed himself on a waiting list for a slip for larger boats at Pope's Island Marina in New Bedford several years earlier.  When questioned about the article, Mr. Brodsky conceded that he put himself on the wait list at Pope's Island Marina in 2008, before he had acquired Odyssey.,  The Board found that all of these actions, taken together, undercut Mr. Brodsky's claim that he never intended to store or use Odyssey in Massachusetts at the time of its purchase.  
	On the basis of all of the evidence, including the contemporaneous documents and the reasonable inferences drawn therefrom, the Board found and ruled that the appellant purchased Odyssey for storage and use in Massachusetts, among other places, and therefore the Commissioner properly assessed the use tax at issue.  Accordingly, the Board issued a decision for the appellee in this appeal. 
OPINION
	During the period at issue, General Laws c. 64I, § 2 imposed a five percent tax on the "storage, use or other consumption in the commonwealth of tangible personal property purchased ... for storage, use or consumption within the commonwealth." The taxable storage or use of a marine vessel includes the sailing, mooring, or repair of the vessel within the Commonwealth. See M & T Charters, Inc. v. Commissioner of Revenue, 404 Mass. 137, 141-42 (1989); Towle v. Commissioner of Revenue, 397 Mass. 599, 605 (1986); Liberty Marine, LLC v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2008-1, 11. Property need not be used exclusively or even primarily in Massachusetts to be considered purchased for use within the Commonwealth. Towle, 397 Mass. at 605. Because Odyssey was stored and used in the Commonwealth beginning in May of 2009, the Board found and ruled that Odyssey was stored and used in the Commonwealth for purposes of G.L. c. 64I, § 2. 
	The issue in this appeal was whether Mr. Brodsky purchased Odyssey with the intent to use it in the Commonwealth, as the Commissioner contended, or whether, as Mr. Brodsky maintained, he did not foresee its use in Massachusetts at the time of purchase.  
	Property is presumed to have been purchased for use in Massachusetts if it was delivered or brought into the Commonwealth within six months of its purchase. G.L. c. 64I, § 8(f) ("Section 8(f)"). When property is brought into the Commonwealth more than six months after purchase, the statutory presumption of Section 8(f) does not apply. Mr. Brodsky took possession of the Odyssey on November 5, 2008. He began sailing Odyssey to Massachusetts on May 9, 2009, which was 6 months and 4 days from the date of purchase. He arrived in Massachusetts on May 18, 2009, 6 months and 13 days from the date of purchase. Accordingly, the Board found and ruled that the statutory presumption does not apply in this instance. 
	However, Section 8(f) is not dispositive of the ultimate issue of taxability.  See Macton Corp. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports, 1993-95, 106. "[T]he presumption alone does not conclusively establish [liability] for the use tax. The board must still resolve, on the basis of all of the evidence of record, the ultimate issue of whether the [property] was purchased for storage, use, or consumption in Massachusetts."  In the present appeal, the Board found and ruled that the preponderance of the evidence indicated that the appellant purchased Odyssey with the intent to store and use it, at least some of the time, in Massachusetts.  
	First, the Brodskys' storage and use of Odyssey was consistent with their long-standing practice of storing and using a vessel in Massachusetts each summer.   Mr. Brodsky brought Odyssey to the same marina that he used to moor the vessels he purchased both prior to and after purchasing Odyssey.  The Board found Mr. Brodsky's testimony that he only brought Odyssey to Massachusetts so he could personally supervise repairs to be less than credible for a number of reasons, including the fact that he had not remained present in Florida to oversee all of the repairs performed on Odyssey earlier in 2009.  The Board thus rejected Mr. Brodsky's claim that the unforeseen need for repairs was the reason he brought Odyssey to Massachusetts in 2009 and instead concluded that Mr. Brodsky purchased Odyssey with the intent to store and use it during the warmer months in Massachusetts, just as he did again with Odyssey in 2010 as well as with the boats he owned before and after Odyssey.  
	In addition, the contemporaneous documents entered into the record consistently listed Massachusetts as the hailing port or place of mooring for Odyssey.  See M & T Charters, 404 Mass. at 141 (rejecting taxpayer's claim that boat purchased in Florida was not purchased for use in Massachsetts when contemporaneous documents - including the purchase and sale agreement - listed Massachusetts as the documentation port).  Although, in accordance with 46 C.F.R. § 67.119, a marine vessel owner may select any place in the United States as its registered hailing port, Mr. Brodsky used Fairhaven as Odyssey's hailing port on U.S. Coast Guard and Homeland Security documentation and listed New Bedford as its permanent place of mooring on its insurance policy. See Liberty Marine, LLC, Mass. ATB Findings of Fact and Reports at 2008-13 (taxpayer failed to prove that the mooring of a vessel was outside of the Commonwealth when forms filed with the U.S. government and the insurance carrier all listed a Massachusetts address).  Despite Mr. Brodsky's purported intention to permanently moor Odyssey in Florida, the slip rental he obtained for it there was shorter term - month-to-month - than the slip rental he obtained in Massachusetts, which was a seasonal slip covering the boating season.   Moreover, he did not insure or otherwise document Odyssey in Florida, nor did he pay a use tax there.  See Towle, 397 Mass. at 600, 605.  	The Board found that these facts, taken together, contradicted Mr. Brodsky's stated intent to permanently moor Odyssey in Florida and instead supported the conclusion that he purchased Odyssey with the intent to bring it to Massachusetts, consistent with his established seasonal pattern of coming to, and boating in, Massachusetts during the warmer months of each year.  On the basis of all of the evidence, the Board found and ruled that Mr. Brodsky purchased Odyssey for storage and use in the Commonwealth and that the Commissioner properly assessed the use tax at issue.  Accordingly, the Board issued a decision for the appellee in this appeal. 
	 
THE APPELLATE TAX BOARD




By:								
                             Thomas W. Hammond, Jr., Chairman

   
A true copy,



Attest:_____________________________
  	      Clerk of the Board

 In 2012, following the period relevant to this appeal, the Brodskys moved from Texas to Florida.  
 Although the Purchase and Sale Agreement recited a purchase price of $805,000, it appeared from documents entered into the record that an additional $10,000 had been previously escrowed toward the total purchase price.  
 The slip contract showed that it was originally printed in November 2008. The Commissioner argued that this constituted evidence that Mr. Brodsky requested the contract in the fall of 2008. Mr. Brodsky claimed that it was the custom of Gear Locker to print contracts at the end of each summer boating season to offer to existing customers wishing to moor their boats there again in the coming year. The Board found that there was no evidence that Mr. Brodsky received the contract prior to March 2009. As such, the Board found that the date of the contract's original printing was not relevant to whether Mr. Brodsky intended to use the vessel in Massachusetts at the time of purchase. 
 Mr. Brodsky's testimony was at times evasive, which further damaged his credibility.  When asked directly by the hearing officer whether the boats he previously owned were registered in Massachusetts, which would generally have meant that a sales or use tax was paid on them, he answered a seemingly different question, replying: "The mooring was in Massachusetts, yes."  As is demonstrated by the facts of the present appeal, mooring a boat in Massachusetts does not mean that a sales or use tax has been paid.  
 Although Mr. Brodsky owned My Way Too in 2008, it was a smaller "local use" type of boat, in Mr. Brodsky's words, for which slips were readily available, unlike Odyssey and the "yachts" discussed by Mr. Brodsky in the letter to the editor.  
 Several times during his testimony, Mr. Brodsky emphasized that Odyssey was a large, ocean-going vessel, as opposed to a small local-use vessel, like My Way Too, presumably in an effort to support his claim that he purchased Odyssey for the purpose of taking extended cruises, primarily in the Caribbean.  The Board found this testimony to be unavailing. At 71-feet, John Bow was an even larger vessel than Odyssey, and the evidence showed that Mr. Brodsky stored and used John Bow in Massachusetts, too. 
 The tax rate has since been increased to 6.25%. See G.L. c. 64I, § 2.

ATB 2016-155