Sometimes just storing valuable personal property can raise tax issues. A businessman in Tennessee recently learned this lesson when the state assessed more than $100,000 in use taxes against him for keeping a motor home within the state’s borders. Although a lower court previously ruled in the businessman’s favor, a state court of appeals sided with the state’s tax collectors.
Ralph McCurry owns a one-member limited liability company that buys and sells “recreational parks and other real property.” Although McCurry organized his business in Montana, he maintained a residence in Tennessee. He purchased a motor home to serve as his mobile office. He did not pay any sales tax on the nearly $1 million purchase.
McCurry used the motor home between 2007 and 2012 to conduct business trips outside of Tennessee, but he spent at least six months out of the year at home. The Tennessee Department of Revenue argued this made McCurry liable for use tax on the motor home. The Department assessed McCurry approximately $103,000 in use taxes less a credit of about $27,000 for taxes previously paid to the State of Alabama on the same motor home.
McCurry sued the Department in Tennessee state court to overturn the assessment. A trial judge ruled against the Department, holding it could not assess use taxes against McCurry for a vehicle he used exclusively for business outside of Tennessee. The court said there were insufficient “minimum contacts” between Tennessee and McCurry to justify the tax assessment.
But in a decision issued on Nov. 14 of this year, a three-judge panel of the Tennessee Court of Appeals reversed the trial judge and upheld the Department’s assessment. Presiding Judge J. Steven Stafford, writing for the panel, said the trial court should have gone beyond the “minimum contacts” test and determined whether there was a “substantial nexus” between Tennessee and McCurry’s business. The United States Supreme Court has previously held a state cannot assess sales or use taxes without first establishing a substantial nexus exists.
Here, even though McCurry did not conduct business within Tennessee, he established a “physical presence” by storing the motor home there. He also “used” the motor home within Tennessee by traveling to and from his home. Stafford stated that this was enough to establish a substantial nexus in Tennessee, especially since McCurry previously agreed to pay use taxes to Alabama when he stored the same motor home in that state.
S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.