That Sinking Feeling

May 11, 2015 § 2 Comments

Most old adages stick around for centuries because they have at their heart a kernel of truth. Sayings like “You can’t tell a book by its cover,” and “The early bird gets the worm” ring true because they are true. Trite and true.

Another old saying is, “A boat owner’s two happiest days are (1) the day he buys the boat, and (2) the day he sells it.”

We can now add a corollary to (1) above: “the day he buys the boat … unless the Mississippi Department of Revenue (MDOR) demands payment of use tax.”

Vincent Castigliola, Jr., a Pascagoula lawyer, thought he had had his happiest day when he bought a yacht in Florida from Mark Fallon, an Ohio individual who was not engaged in the boat trade, but who had marketed the boat through a boat marketing service. Vincent undoubtedly was happy until the killjoys from the MDOR showed up and demanded that he fork over another $7,588 in use taxes for the transaction. This, I am sure, made Vincent unhappy, boat and all.

Use taxes, as I am sure you know, are paid on purchases of personal property from a dealer in another state when that personal property is used in Mississippi. A boat bought from a dealer in Florida and brought to Mississippi incurs a use tax. A computer bought from Best Buy in Baton Rouge and brought to Mississippi incurs a use tax. And so on. The rule is that if the transaction would have borne sales tax in Mississippi if it occurred here, it incurs use tax if it took place in another state. Casual sales between individuals not operating as dealers, incur neither sales nor use tax.

Vincent exhausted his administrative remedies and appealed to chancery court. MDOR filed for summary judgment claiming that Vincent could not meet his burden of proof that he was entitled to the exemption, and that the transaction was between a dealer and Vincent.

The chancellor granted summary judgment in favor of MDOR, and Vincent appealed.

In the case of Castigliola v. Mississippi Dept. of Revenue, the MSSC reversed and rendered, the opinion by Chief Justice Waller holding that it was the MDOR’s burden to prove that the transaction was subject to the casual-sale exemption, and that the purchase was not subject to Mississippi use tax. The decision was unanimous, with Justice Randolph not participating.

You can read the opinion for yourself. There is an interesting discussion of the distinction between exclusions and exemptions. In all, it’s an interesting read.

And it’s a victory of sorts for taxpayers, not to mention attorneys who aim to be happy boat owners.

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