We got an email recently from Bin D. questioning whether she had been wrongfully charged sales tax by REI on a biking jacket she bought for her husband.
In Massachusetts, clothing and footwear up to $175 is free of sales tax year-round. Lucky us. Otherwise the sales tax is 6.25-percent. But our unlucky consumer was charged tax anyway.
She questioned the erroneous charge three times with REI, particularly after realizing that other sellers did not charge tax on this jacket. Here is their response:
We will not provide a refund of tax for this order. This is a sports specific jacket and as a result tax levied is correct. The clothing tax exemption does not apply to clothing and footwear that are primarily designed and used for athletic activities or for protective use and that are normally [not] worn except for such purposes.
We asked Boston’s ace consumer reporter at WCVB, Ben Simmoneau, to take on the case and hopefully get REI to stop charging sales tax on exempt items like that jacket.
Well, despite the TV news story, the company continues to buck the system not fully understanding the Massachusetts tax law.
The actual statute, MGL. c. 64H, Sec. 6 provides:
*MOUSE PRINT:
(k) Sales of articles of clothing, including footwear, intended to be worn or carried on or about the human body up to one hundred and seventy-five dollars of the sales price on any article of clothing. For the purposes of this section clothing or footwear shall not include special clothing or footwear primarily designed for athletic activity or protective use and which is not normally worn except when so used.
The Massachusetts Department of Revenue explains the law in plain English:
Tax Exempt:
… jackets, windbreakers
While apparel designed solely for athletic or protective use is taxable, items that are also suitable for everyday use are exempt.
Taxable:
… athetic uniforms (baseball, football, etc.), Clothing primarily designed to protect from physical injury…
In our view, there is nothing about this jacket that would make it unsuitable for everyday wearing, and just because a manufacturer decides to market it as a “cycle jacket” doesn’t limit its use because of its design, looks, or functionality.
We think REI is incorrectly applying the law in this case.
An unnamed now defunct Boston discount store used to charge tax on many things that were exempt. It was always an argument. If a scarf sold at that store for 50 dollars a salesperson would always charge tax using the excuse the item’s original sold at other store’s price was over 175. Made no sense.
BOYCOTT REI FOR ALL FUTURE PURPOSES….WHAT A JOKE.
I don’t care for any store that won’t follow the rules. MANY stores sell the same products as REI, that’s where I will shop. Just don’t give them any of your business.
My question would be if they are actually paying the state the improperly collected tax and if MA is actually accepting it now that it has been made public. Or is MA happily continuing to accept it as part of a non-itemized haul of income?
Silly me — of COURSE MA is raking it in, assuming they receive it.
I wonder what the annual total of tax on such goods is.
Both. When businesses file their sales tax forms, they get a discount (or kickback) for timely filing. It’s a small percentage, but it can add up for large retailers
Senior Kolchek, I wouldn’t characterize it as a kickback. I think of it more as funds to cover the expenses related to being the agent of the state. Each business is essentially a tax collector for the state.
Not only does the business have to collect the tax, they have to manage it and file it. Usually they have to pay for software to manage the tax rates (and the extra time for the person doing the work), if they do business across tax jurisdictions (ie towns/counties/states), then they have to pay for all those extra tax rates for the calculation.
Alas, REI is right to rely on the plain language of the statute. At the time of sale, the jacket is intended for a specific use that renders it taxable. A retailer cannot be expected to chance being held liable to the revenue department for accumulated tax, penalty and interest because it failed to collect sales taxes from customers who claimed to use taxable goods for nontaxable purposes.
The customer can request her refund directly from the revenue department and raise the same argument of interpretation (alternative or dual use). The final interpretation must come from the Commonwealth of Massachusetts, not REI.
Read the article again, especially the “While apparel designed solely for athletic or protective use is taxable, items that are also suitable for everyday use are exempt.” part. It’s not a matter of how a specific customer uses the item. It’s whether the item is suitable for everyday use. Surely, you’re not trying to argue that jackets cannot be used for everyday use
Furthermore, it is explicitly excluded as stated in a bullet point at the state’s own web site as linked in the original post.
A few observations:
1-I agree with Fred that the customer should contact the state. Retailers are collection agents for sales tax, which does not belong to the retailer.
2-My guess is that many buyers–often a significant majority–of REI’s sports-oriented clothing items do not primarily use them for sports or as specialized protective gear. The idea that they are specialized designers or suppliers of most of their clothing is, I suspect, just a marketing/branding strategy.
3-Interesting that their online sales tax system may not be the same as what’s used in the stores. And shameful that even in light of that, the company is gaslighting.
4-I don’t know whether REI is still a “cooperative”, or what ostensibly virtuous endorsements they have from outside groups, but REI’s behavior around this–and the silence of their enablers– should be called out.
Even if it was a bicycle jacket, bicycling is not always an “athletic’ purpose. Bicycling is also a METHOD OF TRANSPORTATION!
Considering that REI has stores in Massachusetts, this seems pretty weird. The buyer should contact the Massachusetts’ Attorney General’s Office (or maybe take REI to small claims court).
REI is not at fault here. The law as written is ambiguous and open to interpretation. I’m interpreting this law the same way you all do, but should the store have to evaluate each individual athletic article and interpret whether it is an everyday wear attire.
How about the Red Sox team store? Is that baseball jersey taxable? I can wear it every day if I want but it’s a baseball jersey. Jackets and windbreakers are part of the team uniform as well. I can wear ANY piece of clothing all day any day of the week so nothing should be taxable the way the law is written.
Jim… Ben, the consumer reporter, checked at one of the sports venues where they have souvenir jerseys, and they were NOT taxed.
I’d be interested to know if the Red Sox paid tax on the team jersey then. I’d be willing to bet that Trevor Story never takes his jersey off. I’d argue that he’s normally wearing it every day – so should it be taxed?
REI designed this jacket and sells it for cycling. A coat to protect me from weather, wind and debris. How are they supposed to know that someone is going to where this casually? Why is the burden on REI to decide if this is also casual wear?
My point is that the law is too ambiguous, and the vendor should not be blamed for charging a tax by erring on the side of caution. It’s too much of a headache for them. Write your MA congressman.
Full Disclosure: I live in WA state (aka Land of REI). I’d love no sales tax on clothes less than $175; we currently pay over 10% sales tax.
While it’s true that the law is subject to interpretation, this isn’t even a close call. Of course that jacket can be routinely worn as an article of regular clothing. REI is clearly at fault.
On the other hand, if it had been a goalie mask and the shopper had said it was going to be used for Halloween, then that would be another story.
As much as I despise European style VAT taxes, I feel like they do take a lot of questions out of these sorts of issues.
In general, I’m sure every state could use with a revamping of the entire tax code to make it easier to be compliant, though there is some amount of intentionality behind situations like this with the way the law is written.
Ultimately the problem for regular citizens here is that our motivations aren’t in line with anyone else, so there’s no one to support us without significant pressure being placed on them. This, ‘mistake’ leads to the state bringing in additional tax revenue, so there isn’t going to be a lot of momentum on their side to get this fixed without an uproar from the taxbase that an issue like this is unlikely to cause.
I do think you conducted yourself very well on the interview and I agree with what you’ve stated there.
It may bear repeating that in the REI store, the system did not charge tax on the item; the tax was charged only in their online system. So, REI was not simply applying what it considered to be a particular interpretation of the law.