Articles

Sherin and Lodgen Prevails at the Appellate Tax Board on Behalf of Active Duty Servicemember

By: Matthew A. Morris, LL.M., Esq.[1]

 The Servicemembers’ Civil Relief Act (the “SCRA”) “postpones or suspends certain civil obligations to enable service members to devote their full attention to duty and relieve stress on their families.”[2]  This includes various financial safeguards for active duty servicemembers including protections against default judgments in civil cases, provisions to prevent foreclosures of servicemembers’ homes, and mechanisms to reduce interest rates on pre-service loans.[3] The SCRA also provides that “[t]he personal property of a servicemember or the spouse of a servicemember shall not be deemed to be located or present in, or to have a situs for taxation in, the tax jurisdiction in which the servicemember is serving in compliance with military orders.”[4]

Despite the broad reach of the SCRA, active duty servicemembers still need to rely on state and local governments to recognize and honor the protections provided. Prior to the recent Massachusetts Appellate Tax Board (“ATB”) case LTC Jonathan L. Riggs v. Board of Assessors of the Town of Bedford (“LTC Riggs”),[5] the general consensus among state and local governments in Massachusetts and nationwide was that the SCRA’s protection against local excise taxes applied only to vehicles owned by an active duty servicemember or his or her spouse and did not apply to leased vehicles.[6] Lieutenant Colonel Jonathan L. Riggs (“Lt. Col. Riggs”), an active duty Marine Officer, disagreed with this interpretation and retained us to represent him on a pro bono basis before the ATB in his dispute with the Town of Bedford, Massachusetts.

The questions presented to the ATB in LTC Riggs were (1) whether a lessee of a vehicle has standing to pursue an appeal from a local assessor’s decision to deny an application for abatement of excise tax and (2) whether the SCRA’s protection against local excise taxes extends to a motor vehicle leased by an active duty servicemember. The ATB found in favor of Lt. Col. Riggs on both questions, which sets a new precedent for excise tax cases under the SCRA in Massachusetts and provides much-needed guidance for local tax cases outside of the Commonwealth. To the best of our knowledge, LTC Riggs is the first and only case in the country to specifically provide that the SCRA’s protections apply to vehicles leased by active duty servicemembers.

Factual Background

Lt. Col. Riggs is a West Virginia resident who was serving a temporary assignment at the 1st Battalion, 25th Marines at Fort Devens, Massachusetts, as an active duty Marine Officer. On or about August 29, 2017, Lt. Col. Riggs leased a Chevrolet Silverado from GM Financial (“GM”), through Best Chevrolet, Inc. located in Hingham, Massachusetts. The Town of Bedford (“Bedford”) subsequently charged GM a $350 motor vehicle excise tax related to the Silverado. GM passed this cost through to Lt. Col. Riggs, sending him a bill for $350. Lt. Col. Riggs paid the bill, notified the Bedford Assessor and GM that he should be exempt from paying the tax under the SCRA, and requested a refund of the tax.

In December 2018, we sent a letter to Bedford’s Associate Assessor which summarized our position that Lt. Col. Riggs should be exempt from the tax under the SCRA. After the Assessor denied our application for abatement, we appealed Bedford’s denial in a Petition under Formal Procedure to the ATB. In March 2021, we filed a Motion for Summary Judgment with the ATB.  On October 12, 2021, the ATB allowed our Motion for Summary Judgment and issued a decision for Lt. Col. Riggs granting an abatement of the excise tax. On March 9, 2023, the ATB promulgated its Findings of Fact and Report in support of its decision.

Analysis

In Lt. Col. Riggs’ Motion for Summary Judgment, we asked the ATB to consider a question of first impression: “Does the SCRA protect against the imposition of local property tax on a motor vehicle leased by an active duty servicemember on active duty in Massachusetts and domiciled in another state?”[7] In support of our position that the SCRA should be broadly interpreted to protect against the imposition of local property taxes on leased vehicles, we cited two United States Supreme Court cases:

• California v. Buzard.[8] In Buzard, the Court held that “[t]he very purpose of [the SCRA] in broadly freeing the nonresident serviceman from the obligation to pay property and income taxes was to relieve him of the burden of supporting the governments of the States where he was present solely in compliance with military orders.”[9]
• Dameron v. Brodhead.[10] In Dameron, the Court held that the SCRA’s protections against the imposition of local excise taxes on property owned by active duty servicemembers were not limited to instances of multiple taxation, but instead were broadly intended to “free[] servicemen from both income and property taxes imposed by any state by virtue of their presence there as a result of military orders.”[11]

Col. Riggs Has Standing as “Person Aggrieved”

In its response to Lt. Col. Riggs’ Motion for Summary Judgment, Bedford argued that Lt. Col. Riggs lacked standing to challenge the tax because he was the lessee of the vehicle rather than the lessor. Bedford contended that GM as the assessed taxpayer is the only party with standing to bring this appeal and that Lt. Col. Riggs was not an appropriate “aggrieved party” to appeal an abatement denial under M.G.L. chapter 59, section 64.[12]

Lt. Col. Riggs responded to Bedford’s jurisdictional argument by asserting that he “derives standing from the [SCRA] and the Supremacy Clause in Article VI of the United States Constitution,” and that he also has standing under Massachusetts law as a “person aggrieved” as “one whose pecuniary interests are or may be adversely affected.”[13] Lt. Col. Riggs argued that even though he was not the owner of the vehicle, “his pecuniary interests were adversely affected because the incidence of the tax ultimately fell upon him.”[14]

The ATB agreed with Lt. Col. Riggs on the standing issue, ruling that he has standing to appeal the abatement denial because the incidence of the tax ultimately fell upon him.[15] In reaching its conclusion in favor of Lt. Col. Riggs on the standing issue, the ATB cited the Supreme Court’s holding in First Agricultural National Bank v. State Tax Commission that “a sales tax which, by its terms, must be passed on to the purchaser imposes the legal incidence of the tax upon the purchaser.”[16] In First Agricultural Bank, the Court determined that the ultimate question for the limited purpose of determining federal immunity from state taxation is “On whom does the incidence of the tax fall?” regardless of how a state court characterizes the tax.[17]

The SCRA Protects Against the Imposition of Local Excise Taxes on Vehicles Leased by Active Duty Servicemembers

On the issue of whether the SCRA should be broadly interpreted to afford protections to vehicles leased by active duty servicemembers, Bedford argued that the two cited Supreme Court cases, Buzard and Dameron, are inapposite because they relate to situations in which the servicemember owned, not leased, the assessed personal property. Bedford acknowledged that there was not a single case that directly addressed whether the SCRA applied to leased vehicles, but cited a Q&A format article by Captain Samuel Wright, JAGC, USN (Ret.) entitled The SCRA Protects You from Having to Pay Personal Property Tax on the Vehicle that You Own, but Not a Vehicle You Lease.[18]

In Lt. Col. Riggs’ Reply to Bedford’s Opposition to Motion for Summary Judgment, we asked “why the U.S. Supreme Court would hold that the purpose of the statute is to ‘relieve [a servicemember] of the burden of supporting the governments of the States where he was present solely in compliance with military orders’ while simultaneously prohibiting lessee servicemembers from the benefits of this interpretation.”[19] In response to Bedford’s citation of the article by Captain Wright, we argued that a practical guide in Q&A format should not dictate the outcome of this case because it is directed to whether a servicemember should purchase or lease a vehicle rather than the more complex inquiry of whether the SCRA should be interpreted to apply to leased vehicles.[20]

The ATB agreed with Lt. Col. Riggs that the SCRA “is specifically designed to limit the power of states to enact a tax on individuals or entities that would otherwise be subject to state tax.”[21] The ATB ruled that “the imposition of the excise violated federal law providing specific rules for the treatment of the property of servicemembers who are stationed outside of their state of residence.”[22]

Conclusion

In consideration of the ATB’s ruling in LTC Riggs, it is now clear that active duty servicemembers stationed in Massachusetts and domiciled elsewhere are not responsible for excise taxes assessed on motor vehicles owned or leased by those servicemembers. Although the amount of the tax at issue in this case was relatively small, Lt. Col. Riggs was always convinced that the SCRA should protect him from paying any excise taxes to the Town of Bedford and refused to give up on his challenge as a matter of principle. As a direct result of Lt. Col. Riggs’ confidence in the merits of his position and refusal to yield to the assessment, the ATB has now provided servicemembers with long-awaited clarity on the SCRA’s protection against local taxes on leased vehicles.

[1] Matthew Morris is a Tax Partner at Sherin and Lodgen LLP. See https://www.sherin.com/professionals/matthew-a-morris/.

[2] Office of the Comptroller of the Currency, Servicemembers’ Civil Relief Act, https://www.occ.treas.gov/topics/consumers-and-communities/consumer-protection/servicemembers-civil-relief-act/index-servicemembers-civil-relief-act.html.

[3] See 50 USC secs. 3931 (protection against default judgments in civil cases); 3937 (six percent cap for interest on obligations incurred before service date); 3953 (protection against foreclosure).

[4] 50 USC sec. 4001(d)(1).

[5] ATB Docket No. F337365 (Mar. 9, 2023), ATB 2023-120 to 127, available at https://www.mass.gov/doc/riggs-ltc-jonathan-v-board-of-assessors-of-the-town-of-bedford-findings-of-fact-report-march-9-2023/download.

[6] See, e.g., Massachusetts Department of Revenue, Division of Local Services, Local Tax Benefits: Veterans and Active Servicemembers (Feb. 2009), sec. 3.2.1, available at https://www.mass.gov/doc/2009taxbenefitspdf/download (“This exemption applies just to property owned by the servicemember. If the servicemember leases a vehicle, the owner/lessor is billed for the excise and the terms of the lease govern whether that cost is passed along to the servicemember/lessee.”); Secretary of the Commonwealth, Motor Vehicle Excise Information at 11, available at https://www.sec.state.ma.us/cis/cisexc/excidx.htm (“Leased vehicles are also not eligible for this exemption . . . .”); Craven County (North Carolina), Active Duty Military Motor Vehicle Exemption, https://www.cravencountync.gov/2270/Active-Duty-Military-Motor-Vehicle-Exemp (last visited April 4, 2023) (“Exemptions cannot be claimed on leased vehicles unless they have a tax situs on a military base in an area of exclusive federal jurisdiction.”). The view that the SCRA does not protect against the imposition of local taxes on leased vehicles is shared by Captain Samuel Wright, JAGC, USN (Ret.), in his article cited in note 18, infra, and discussed in accompanying text.

[7] Appellant Lt. Col. Jonathan L. Riggs’ Reply to Appellee’s Opposition to Motion for Summary Judgment at 4.

[8] 382 U.S. 386 (1966).

[9] Id. at 393.

[10] 345 U.S. 322 (1953).

[11] Id. at 326.

[12] Bedford’s Opposition to Lt. Col. Riggs’ Motion for Summary Judgment at 3.

[13] Lt. Col. Riggs’ Reply to Bedford’s Opposition to Motion for Summary Judgment at 2-3.

[14] Id. at 3.

[15] ATB 2023-122.

[16] 392 U.S. 339, 347 (1968).

[17] Id. at 347-48 (reversing the Massachusetts Supreme Judicial Court’s decision in First Agricultural National Bank of Berkshire County v. State Tax Commission, 353 Mass. 172 (1967), that the bank, as purchaser, was not entitled to relief because the incidence of the sales tax falls upon vendors).

[18] Servicemembers Legal Center, Law Review 20055 at 5 (June 2020), available at https://cdn.ymaws.com/www.roa.org/resource/resmgr/lawreviews/2020/20055-LR.pdf (“Section 4001(d)(1) does not exempt the leasing company from the obligation to pay the personal property tax, nor does it exempt you from the obligation to reimburse the leasing company for the personal property tax the company pays.”).

[19] Lt. Col. Riggs’ Reply to Bedford’s Opposition to Motion for Summary Judgment at 2-3 (citing California v. Buzard, 382 U.S. 386, 393 (1966)).

[20] Id. at 4.

[21] ATB 2023-126.

[22] ATB 2023-122.