Supreme Judicial Court rules against Raytheon

By Casey Ross, Globe Staff

As it turns out, Raytheon's toilet paper is not tax exempt after all.

The state's highest court contradicted rulings in other states that allowed the Waltham-based defense contractor and its competitors to get refunds for sales taxes paid on expenses related to work for the federal government.

The ruling by the Supreme Judicial Court prevents the state Department of Revenue from having to repay Raytheon Co. more than $700,000 plus interest for taxes on items it bought as part of its government work in 2001 and 2002. The list of items included in the refund request was wide-ranging - from printer toner and cell phone service, to toilet paper, a jukebox, and promotional items such as lapel pins and golf umbrellas.

Raytheon had argued those expenses fit an exemption in state law that prevents companies from having to pay taxes on items it buys for resale. The exemption is meant to prevent consumers from paying taxes on the same item twice - once when companies purchase the item and again when they sell it.

But the court found that the items bought by Raytheon were indirectly related to its work for the government and therefore not covered by the exemption.

"The resale of indirect cost items to the United States was incidental to Raytheon's business, facilitative rather than central to it," the court wrote.

A spokesman for Raytheon declined to comment.

If the company had won, the state Department of Revenue would have had to repay it more than $1 million with the interest charges included.

"We're very pleased with the decision," said Robert Bliss, a spokesman for the Department of Revenue.