Casual sales and use tax exemptions versus exclusions

by Skip Oliva May 15, 2015

Is sales tax due on casual sales?

Not every sale is subject to sales or use tax. If it were, then anyone holding a garage sale would be liable for collecting and remitting sales tax. That is why states typically exempt “casual” sales from taxation – that is, private sales that are not made in the ordinary course of the seller’s business.

Tax collectors, of course, want to maximize revenue, so they make every effort to reclassify casual sales as taxable. One issue the courts then have to sort out is where to place the burden of proof. Does the state have to prove a sale is taxable, or does the taxpayer have to prove it’s not? The Mississippi Supreme Court recently addressed this question and ultimately ruled in favor of the taxpayer.

Castigliola v. Mississippi Department of Revenue

In the case of Castigliola v. Mississippi Department of Revenue, a Mississippi resident went to Florida and purchased a boat from a private seller. The seller was not a broker or dealer in boats, but he did employ a yacht broker to provide limited marketing services. By purchasing the boat through the broker, the sale was exempt from Florida’s sales tax.

But Mississippi tax officials argued the buyer should then be liable for paying use tax in his home state.  The Mississippi Department of Revenue argued the seller’s use of a broker meant the sale was not “casual,” and therefore taxable under Mississippi law. The department subsequently imposed a $7,500 use tax bill against the buyer, who appealed to the courts.

Although a trial-level court ruled in favor of the department, the Mississippi Supreme Court unanimously reversed in an April 30 decision. Chief Justice William L. Waller, Jr., writing for the court, said there were two issues here. First, was the burden on the buyer to prove he was entitled to a “casual-sale” exemption from use tax; and second, whether the purchase itself was subject to use tax.

The distinction between use tax exemption and use tax exclusion

On the first question, the chief justice said the trial court improperly placed the burden of proof on the buyer, rather than the department. Because the buyer argued his purchase was “beyond the State’s taxing authority,” he was claiming an “exclusion” rather than an “exemption” from use tax. This was not merely a semantic argument, the chief justice said, but an important legal distinction. Under Mississippi law, the burden is on the state to prove “a particular transaction falls within its statutory power to tax.” Only after the state establishes this power does the burden shift to the taxpayer to prove he is entitled to an exemption under some specific statute or rule.

Here, the chief justice said, “the casual-sales exception to sales and use tax is an exclusion and not an exemption.” This means the burden was on the state to prove the purchase of the boat was nota casual sale. Any ambiguity on this point must be resolved in favor of the taxpayer. The department’s only basis for arguing the transaction here was not a casual sale was the involvement of the third-party broker. But the chief justice said that argument “is erroneous, if not disingenuous.” There was no question the buyer purchased the boat from the private seller, not the broker. The use of a third-party marketing agent did not convert a casual sale into a taxable event.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog

Skip Oliva
Skip Oliva

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