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Vermont Supreme Court Upholds Taxes and Penalties on Wholesale Grocer for Items Used in Transporting Perishable Goods

In C&S Wholesale Grocers, Inc., v. Department of Taxes, 2016 VT 77A, the Supreme Court upheld the Department of Taxes’ decision to tax impose taxes and penalties on items used by grocer to transport perishable goods, and its refusal to refund sales tax on diesel fuel used to power the refrigeration systems.

Issue: Taxpayer, a wholesale grocer, argued at the trial level that the Department of Taxes should not have assessed sales tax on fiberglass freezer tubs that Taxpayer uses to transport perishable items, that the Department should have refunded sales tax paid on diesel fuel to power Taxpayer’s portable refrigeration systems, and that the penalty assessed by the Department of Taxes was unreasonable.

Holding: The Court affirmed on all counts. As to the sales tax on the freezer tubs, the Court deferred to the statutory interpretation of the Department and found that freezer tubs are not subject to the packing and shipping materials exemption to the sales tax statute because they stay in the stream of commerce. Similarly, the Court found that Taxpayer was not entitled to a refund of sales tax, under the shipping materials exemption, for the reefer fuel used to power its mobile refrigeration systems because the fuel does not continue down in the stream of commerce. Finally, the Court found that Taxpayer failed to preserve its argument that the penalty assessed against it was unreasonable, given Taxpayer’s good faith.