Massachusetts Appeals Court holds that auto insurer does not have to pay sales tax for replacement vehicle if no such taxes have been incurred

The standard Massachusetts auto policy includes a provision that damages for a vehicle totalled by the insured "include any applicable sales tax."

In Ramirez v. Commerce Ins. Co., 91 Mass. App. Ct. 144 (2017), the Massachusetts Appeals Court held that that provision applies only if the claimant has actually purchased a replacement vehicle on which sales tax was assessed.  

Wrbasy Ramirez was involved in a collision with a car driven by Edith McGuinness, who was insured by Commerce. Ramirez's vehicle was declared a total loss.  Ramirez chose to retain ownership of it, so Commerce was liable to him for the actual cash value less the salvage value.

Ramirez accepted Commerce's calculation as far as it went, but objected to the omission of Massachusetts sales tax in the amount of his loss.  Commerce informed him that he would be reimbursed for sales tax upon proof that he purchased a replacement vehicle and incurred the tax.

The Massachusetts Appeals Court agreed that Commerce did not have to pay the sales tax.  It reasoned that such tax does not constitute an element of damages if Ramirez did not actually incur the tax by purchasing another vehicle.