Liberty Marine, LLC v. Commissioner of Revenue (January 10, 2008)

COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD

LIBERTY MARINE, LLC			v.	COMMISSIONER OF REVENUE
Docket No. C279043			 	Promulgated:
						 	January 10, 2008

	This is an appeal under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 39 from the refusal of the appellee Commissioner of Revenue ("Commissioner") to abate use tax assessed against appellant, Liberty Marine, LLC ("Liberty Marine"), under G.L. c. 64I, § 2 on its storage and use in Massachusetts of a sailing vessel purchased in 2002.
	Chairman Hammond heard the appeal.  Commissioners Scharaffa, Egan, Rose, and Mulhern joined him in the decision for the appellee.
	These findings of fact and report are made pursuant to requests by the appellant and appellee under G.L. c. 58A,  § 13 and 831 CMR 1.32.

	Kevin J. Kilduff, Esq., for the appellant.
	Kevin M. Daly, Esq. and David Mazzuchelli, Esq., for the appellee.
FINDINGS OF FACT AND REPORT
On the basis of the parties' Stipulation of Facts, and the testimony and exhibits introduced at the hearing of this appeal, the Appellate Tax Board ("Board") made the following findings of fact.
At all times relevant to this appeal, Liberty Marine was a single-member limited liability corporation ("LLC") organized under the laws of the state of Rhode Island with a primary business address of 35 Industrial Way, Canton, Massachusetts.  John Desmond, the President, Manager, and sole member of Liberty Marine ("Mr. Desmond") testified that Liberty Marine's business purpose was to own and operate sailboats.  
The Commissioner conducted an audit of Liberty Marine on July 31, 2003, after receiving an anonymous complaint concerning Liberty Marine's failure to pay use tax on its Massachusetts storage and use of a forty-eight foot sailing vessel named Affinity.  Based on an examination by the Commissioner's Bureau of Desk Audit, which included discussions with the Town of Marion's Harbormaster, the Commissioner determined that Liberty Marine was liable for use tax on its Massachusetts storage and use of Affinity.  
On August 25, 2003, the Commissioner issued to Liberty Marine a Notice of Failure to File Return.  On March 2, 2004, the Commissioner issued to Liberty Marine a Notice of Intent to Assess use tax in the amount of $130,802.87, based on the "best information available" to the Commissioner at that time.  Approximately seven months later, on October 4, 2004, Mr. Desmond, as President of Liberty Marine, self-assessed the use tax by filing a sales and use tax return, Form ST-9, reporting a tax liability of $37,401.00, based on the $748,030.00 purchase price of Affinity.  On Form ST-9, Mr. Desmond listed a Massachusetts address, 35 Industrial Drive, Canton, MA 02021, as Liberty Marine's address.  
On October 21, 2004, Liberty Marine filed an Application for Abatement with the Commissioner, seeking a full refund of the use tax assessment.  This Application for Abatement also listed Liberty Marine's address as 35 Industrial Drive, Canton, MA 02021.  On December 7, 2004, the Commissioner issued a Notice of Assessment in the amount of $37,401 in tax plus statutory additions, for a total of $59,422.93.  
According to its Petition filed with the Board, Liberty Marine received correspondence dated May 23, 2005 from the Commissioner indicating that Liberty Marine was subject to the use tax.  Liberty Marine responded to the Commissioner's letter by filing its Petition with the Board on June 6, 2005.  On June 8, 2005, the Commissioner issued a Notice of Abatement Determination, denying the abatement requested.  On the basis of these facts, and as will be discussed in the Opinion, the Board found and ruled that, although Liberty Marine's Petition was premature, the Board had jurisdiction over this appeal. 
On or about February 13, 2002, Liberty Marine purchased the forty-eight foot sailboat at issue in this appeal.  The sailboat was named Affinity, the same name as a forty-two foot vessel that Mr. Desmond owned individually.  The forty-eight-foot Affinity was a competitive racing boat made in Finland and equipped with sleeping accommodations, cooking facilities, and bathrooms.  Mr. Desmond testified that, at the time Liberty Marine purchased Affinity, his business intent for the sailboat was to conduct a sail charter business, to participate in racing events, and to engage in trans-Atlantic sailing. 
The manufacturer delivered Affinity to Liberty Marine in Baltimore, Maryland in March 2002.  It was commissioned a month later in Annapolis, Maryland, where it remained until May 2002, when it was transferred to Rhode Island.  Liberty Marine registered Affinity with the state of Rhode Island and declared the "hale port" to be in Newport, Rhode Island.  In May 2002, Affinity was moored in both Newport, Rhode Island and Conanicut Marina in Jamestown, Rhode Island.  Liberty Marine did not own a permanent or seasonal mooring for Affinity at either of these ports.  
At the time of purchase of Affinity, Mr. Desmond already had a mooring in Marion harbor, located in Massachusetts, which he had used for his forty-two foot sailboat, also named Affinity.  At the hearing, Mr. Desmond testified that he ordered a forty-four-foot sailboat sometime in July of 2000.  On July 31, 2000, Mr. Desmond filed an Application to Increase Boat Size for his Marion harbor mooring from forty-two feet to forty-four feet; this application was approved on February 6, 2001.  Mr. Desmond testified that he later replaced the contract for the forty-four-foot sailboat with one for a forty-eight-foot sailboat.  On July 25, 2001, Mr. Desmond filed a second Application to Increase Boat Size to increase his mooring to forty-eight feet; this application was approved on January 3, 2002.  Liberty Marine purchased Affinity on February 13, 2002, approximately one month after the approval of the forty-eight-foot mooring.  On May 1, 2002, Mr. Desmond signed a mooring registration application in Marion harbor for a forty-eight foot sailboat, referred to as Affinity, which contained the following admission:  "[M]y boat will be habitually moored in Marion waters for the 2002 Boating Season."    
Mr. Desmond testified that he originally anticipated traveling to Europe with the sailboat and he intended to moor Affinity in Rhode Island in the summer months and in the British Virgin Islands in the winter months.  However, Mr. Desmond also testified that he anticipated using Affinity in races in Massachusetts:
Historically, I have done some races in Massachusetts with my old boats.  So I thought we would do some racing, and thought the principal purpose of this boat would be 365 days a year in the water for charter and cruising and racing.

During the summer months of 2002, Mr. Desmond sailed Affinity into Massachusetts waters on numerous occasions for racing and entertaining.  While in Massachusetts, Mr. Desmond moored Affinity primarily in Marion Harbor, either at his personal mooring or at the Beverly Yacht Club located in Marion.  On May 24, 2002, a Friday, Mr. Desmond moored Affinity in Marion harbor to participate in the Fagawi Race between Hyannis and Nantucket.  The race took place on a Saturday with an awards ceremony on Sunday, and Affinity left Massachusetts on Monday.  Affinity sailed in the race and moored in Marion, Massachusetts for the entire weekend.  
From July 3 through July 5, 2002, Mr. Desmond moored Affinity in Marion Harbor while participating in the July 4th Beverly Yacht Club Race in Massachusetts.  Mr. Desmond also used Affinity in Massachusetts to entertain guests and socialize during that holiday weekend.  
From July 19 through July 21, 2002, Mr. Desmond sailed Affinity in a race in Edgartown, Massachusetts.  On August 1, 2002, Affinity once again returned to Massachusetts.  The vessel was moored in Marion Harbor, then in Provincetown, Massachusetts, before heading to Portland, Maine on August 3, 2002.  
On August 26, 2002, Mr. Desmond brought Affinity to Barden's Boat Yard in Marion, Massachusetts, to have Affinity's oil changed and to participate in a weekly Wednesday night race sponsored by the Beverly Yacht Club.  The vessel remained in Marion Harbor for approximately one to two days.  On the basis of this evidence, the Board found that Mr. Desmond used and/or stored Affinity in Massachusetts for a minimum of thirteen days from May through August of 2002.
At the hearing of this appeal, Alan Baines, Liberty Marine's yacht broker ("Mr. Baines"), explained that he had cultivated a relationship with Mr. Desmond over the course of several years, as yachts are not "an impulse buy," and require much confidence in the broker who facilitates the transaction.  He also testified that many yacht-brokerage companies assist clients in forming Rhode Island LLCs with one of the stated purposes being the avoidance of sales tax: "It is obviously well-known that Rhode Island has no sales tax on yachts."  The appellant offered no evidence that a sales tax had ever been paid to any other state on the 48-foot Affinity.  Moreover, while the appellant was formed as a Rhode Island LLC, documents submitted at the hearing of this appeal, namely the Certificate of Documentation from the United States Coast Guard, an Entry/Immediate Delivery form from the United States Department of the Treasury, a United States Customs filing, invoices from the manufacturer of Affinity, the United States Customs filing, and insurance invoices from Affinity's insurance carrier, all list a Massachusetts address, 35 Industrial Way, Canton, for Liberty Marine.  
On the basis of the foregoing facts, and as further explained in the Opinion, the Board found and ruled that under the facts of this appeal, which include the use by a Massachusetts resident of a sailboat in multiple Massachusetts races, an application to increase the mooring size of a mooring held in Massachusetts to accommodate a forty-eight foot vessel, the purchase of the forty-eight foot Affinity about one month after the approval of the mooring increase, the admission on the mooring application that Affinity "will be habitually moored in Marion waters for the 2002 boating season," the use of a Massachusetts address on numerous forms and formal filings for the appellant, including Customs forms and insurance invoices, and testimony confirming that the appellant intended, at the time of purchase, to use Affinity in Massachusetts races, the Commissioner's assessment of the use tax was proper.  Accordingly, the Board issued a decision for the appellee in this appeal. 

OPINION
1. The Board's jurisdiction to hear this appeal.
The facts of this appeal establish that Liberty Marine filed its Petition with the Board prior to the Commissioner's issuance of the Notice of Abatement Determination.  In Becton, Dickinson and Company v. State Tax Commission, 374 Mass. 230 (1978), the Court held that a taxpayer's premature filing of an abatement application was not fatal to the Board's jurisdiction:
It is well settled in similar cases, where a statute required action within a certain time "after" an event, that the action may be taken before that event. Such statutes have been construed as fixing the latest, but not the earliest, time for the taking of the action.  Tanzilli v. Casassa, 324  Mass. 113, 115 (1949) [citations omitted].  Moreover, it is a general policy of the law to prevent loss of valuable rights, not because something was done too late, but rather because it was done too soon.

Becton, Dickinson, 374 Mass. at 234.  The Board has likewise ruled that a premature filing of a Petition did not deprive the Board of jurisdiction to hear and decide an appeal.  Stanley Home Products, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1986-128, 136.  The Board accordingly found and ruled that the premature filing of the appellant's Petition in the instant appeal was not fatal to the Board's jurisdiction. 
 
2. The application of the use tax against the appellant.
General Laws c. 64I, § 2 imposes 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."  General Laws c. 64I, § 1 defines "use" broadly to "mean and include (i) the exercise of any right or power over tangible personal property incident to the ownership of that property . . . ."  As the Board found in The Emerald Trust v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2005-169, "an extremely limited use is sufficient to constitute a 'taxable use' under the use tax."  Id. at 182 (quoting Thomson v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1990-333, 340) (other citations omitted).  See also Commissioner of Revenue v. J.C. Penney Co. Inc., 431 Mass. 684, 692 (2000) ("'It is hard to find language broader in sweep and scope than that used [in G.L. c. 64I, § 1,] to express the intent of the legislature.'").  The sailing and mooring of Affinity in Massachusetts constituted a "use" of that property under § 1.  Therefore, the principal issue raised in this appeal is whether Affinity was purchased "for storage, use or other consumption" within the commonwealth.  Resolution of this issue depends on whether, at the time of its purchase of Affinity, the appellant had the requisite intent to store or use Affinity in Massachusetts.  See The Macton Corp. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1993-95, 103.  
The Commissioner relied upon the presumption in       § 8(f), which provides that:  
It shall be presumed that tangible personal property shipped or brought to the commonwealth by the purchaser was purchased from a retailer for storage, use or other consumption in the commonwealth provided that such property was shipped or brought into the commonwealth within six months after its purchase.

Liberty Marine purchased Affinity in February of 2002, and then brought the vessel into the Commonwealth less than three months later, on May 24, 2002, to participate in the Fagawi boat race.  Therefore, the § 8(f) presumption applies, and the appellant thus bears the burden of rebutting the presumption that it purchased Affinity with the intent to use it in Massachusetts.  See M & T Charters, Inc. v. Commissioner of Revenue, 404 Mass. 137, 141 (1989). 
 	In order to rebut the presumption, the appellant must present sufficient evidence to establish that the Affinity was not purchased for storage, use or consumption in Massachusetts.  See id.  To meet its burden, the appellant maintained that Liberty Marine was a Rhode Island LLC, Affinity's principal mooring was in Rhode Island, Mr. Desmond immediately returned Affinity to Rhode Island after the Massachusetts races.  The appellant also denied that the Marion Harbor mooring was intended to be used for Affinity, because the mooring was owned by Mr. Desmond personally and not by Liberty Marine.  The taxpayer in M & T Charters similarly had asserted that, at the time of purchase of the subject yacht, it had no intent to store, use, or consume the yacht in Massachusetts.  M & T Charters, 404 Mass. at 140-41.  However, the Supreme Judicial Court there ruled that "[a] bare assertion by the taxpayer that at the time of purchase there was no such intent, is not sufficient to rebut the presumption" which arose one month later when the yacht was brought into Massachusetts.  Id. at 141 (citing Towle v. Commissioner of Revenue, 397 Mass. 599, 605). 
In the instant appeal, the appellant failed to prove his bare assertion that the principal mooring of Affinity was in Rhode Island and not in Massachusetts, where documents submitted into evidence, including forms filed with the Commissioner, paperwork filed with the Department of the Treasury and the Coast Guard, and Affinity's insurance carrier, all listed a Massachusetts address for the appellant LLC.  Moreover, Mr. Desmond testified that, at the time that he purchased the forty-eight-foot Affinity, he planned to "do some racing" in Massachusetts.  He then applied twice to increase the boat size of his mooring in Marion harbor.  The first application, to increase the mooring size to forty-four feet, was submitted in July of 2000, the same month when he entered into a contract to purchase a forty-four foot sailboat.  Mr. Desmond then filed a second application to increase the mooring size to forty-eight feet, and the appellant acquired Affinity about a month and a half after this second application was approved.  Additionally, Affinity's mooring registration for Marion Harbor contained the admission by Mr. Desmond that "my boat will be habitually moored in Marion waters for the 2002 Boating Season."  Further, as Mr. Baines testified, the purchase of a forty-eight-foot yacht is not an "impulse buy."  Accordingly, the Board found that the appellant failed to meet its burden of proving that at the time of purchase, Mr. Desmond did not have the requisite intent to use Affinity in Massachusetts.  
The appellant next contended that the legislative intent of G.L. c. 64I was not to apply the use tax to "isolated use" of tangible personal property in Massachusetts; otherwise, the use tax would be applied to the "ludicrous" extreme of taxing the instruments of every visiting musician or the equipment of every visiting professional athlete used in Massachusetts.  The Board, however, was not persuaded by the appellant's "slippery slope" argument.  Under the facts of this appeal, which the Board found to establish, as of the date of purchase, the appellant's intent to use Affinity in Massachusetts, the Board found and ruled that the application of the use tax against Affinity was prescribed by law (G.L. c. 64I, § 2 and G.L. c. 64I, § 8(f)) and not contrary to public policy.  
The appellant also contended that there was insufficient nexus between Affinity and Massachusetts to support the imposition of a use tax, because the presence of Affinity in Massachusetts was merely "fleeting."  However, "[t]here is no constitutional problem with a State's imposing a tax on property used in that State, but purchased elsewhere."  Towle, 397 Mass. at 606 (citing National Geographic Society v. California Board of Equalization, 430 U.S. 551, 555 (1977))(other citations omitted).  "The Constitution of the United States protects against multiple taxation, not taxation."  Id. (citing National Geographic Soc'y, 430 U.S. at 558, and George S. Carrington Co. v. State Tax Comm'n, 375 Mass. 549, 552-53 (1978).  In National Geographic Society, the Supreme Court declared the "relevant constitutional test to establish the requisite nexus" for use tax obligations was "simply whether the facts demonstrate 'some definite link, some minimum connection between [the State and] the person . . . it seeks to tax.'"  430 U.S. at 561 (quoting Miller Bros. Co. v. Maryland, 347 U.S. 340, 344-45 (1954)).  
The undisputed facts of the appeal establish that Mr. Desmond, the President, Manager, and sole member of Liberty Marine, was a Massachusetts resident who used Affinity in Massachusetts on multiple occasions during the tax year at issue.  The Board found and ruled that the appellant's use and storage of Affinity in a mooring specifically leased to accommodate a vessel of Affinity's size established a physical presence in, and a "minimum connection" with, Massachusetts sufficient to justify application of the use tax.  See Towle, 397 Mass. at 606 (sufficient nexus found where taxpayer leased a berth and stored his sailboat in Massachusetts for several months during the summer boating season).  Accordingly, the Board found and ruled that, under the facts of this appeal, the Commissioner had properly applied a use tax against the appellant.

3. The sufficiency of the Commissioner's audit.
Finally, the appellant argued that the audit was deficient because the auditor never visited Marion Harbor to confirm that the Affinity in question was present; he simply relied upon information provided by an anonymous telephone informant.  Since Mr. Desmond had owned more than one sailboat named Affinity, and the auditor was not aware that Mr. Desmond had personally owned another sailboat with this name, the appellant argued that it is likely that information collected by the auditor referred to the forty-two-foot sailboat Affinity, and the Board thus should not rely on the audit.  
However, irrespective of whatever facts the auditor considered, the Board found, as detailed above, that there was ample evidence to support the imposition of the use tax in this appeal.  The Board has previously found that the issue of the sufficiency of an audit will not jeopardize the application of a use tax where the tax was legitimately applied in a given situation.  See Circuit City v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2002-85, 119-121.  Based on the evidence of record in this appeal, the Board found and ruled that the use tax was properly applied against Affinity.  

4.  Conclusion
Based on the foregoing, the Board found and ruled that the appellant failed to meet its burden of proving, pursuant to G.L. c. 64I, § 8(f), that it did not purchase Affinity for use in Massachusetts.  The fact that Affinity sailed in numerous races and was moored in Massachusetts within six months of its purchase not only triggers the presumption under § 8(f), but also bolsters the finding that Affinity was purchased with the intent of use in Massachusetts.  Moreover, Mr. Desmond's testimony that he planned to enter Affinity in Massachusetts boat races, and the evidence concerning his applications to increase the size of his Marion mooring, together with the admission in his application that he intended to "habitually moor[]" Affinity in Marion waters, undermine the credibility of the appellant's argument that Affinity was not intended to be used in Massachusetts.  Accordingly, the Board found and ruled that the Commissioner properly assessed a use tax against the appellant and thus entered 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

  Liberty Marine also used the Canton address on Form DR-1, Appeals Form, and Form B-37, Special Consent Extending the Time for Assessment of Taxes.
 Unless otherwise noted, references to Affinity will mean the forty-eight foot sailboat purchased by Liberty Marine that is the subject of this appeal.
  Mr. Desmond sold the forty-two-foot Affinity on June 22, 2002.
 John Desmond confirmed that the Affinity referred to on the registration application was the same forty-eight-foot sailboat at issue in this appeal.  
  See infra, note 1, and accompanying text.

ATB 2008-2