The state Supreme Court has ruled that the Town of Groton does not owe sales tax on money it advances for the collection and disposal of commercial garbage.

The high court's unanimous decision in Town of Groton vs. Commissioner of Revenue Services reverses a Superior Court judge's ruling and means the town can now seek a refund of a $260,000 assessment it paid for the years 2007 to 2010.

“We’re pretty happy with it,” said attorney Bryan P. Fiengo of the Suisman Shapiro law firm, who represented the town. Fiengo explained that the town is not selling a service but is “dollar for dollar getting their outlay back” for coordinating commercial garbage collection.

The decision may apply also to the Town of Stonington, which has a similar policy of paying haulers and the regional trash authority up front for services and billing the “end users,” or commercial businesses. The towns then bill the commercial users for their share of the costs of hauling the garbage to the Preston incinerator.

Rita M. Schmidt, mayor and chairman of the town council, said it is “wonderful” that the town would be getting a refund, particularly given the budget shortfalls it is facing. She noted, however, that under a new ordinance that will take effect during the upcoming fiscal year, Groton will no longer be in the business of coordinating trash removal for commercial users.

“It goes back to private industry, where it should be,” Schmidt said.

According to Fiengo, the two towns engaged in competitive bidding for commercial trash hauling service and foot the bill for disposal at the Preston facility. The facility and the hauler bill the town, which in turn collects the fees from the commercial users.

“The state came in and said, ‘You guys are a seller of services and you owe sales tax for provision of that service,’” Fiengo said. Superior Court Judge Henry S. Cohn ruled in the state’s favor following a court trial in 2013, saying the town is “just like any other seller.”

In its reversal of the lower court’s ruling, the Supreme Court agreed with the state that refuse removal services are generally subject to sales tax but the town had served as a “mere conduit,” that had not profited from the arrangement even though it imposed an administrative fee.

“Rather, this fee structure is the plaintiff’s attempt to consolidate and fund the important municipal governmental function of sanitation more equitably and efficiently than by using general tax revenues to pay for the expenses involved, including by outsourcing garbage pick up to a private sector vendor rather than using municipal human resources and equipment for that task,” says the decision, which was written by Justice Richard A. Robinson.

Stonington was not directly involved in the appeal but is likely to benefit.

“We’re happy with the results for Groton,” said First Selectman George A. Crouse. “Hopefully these results also apply to the Town of Stonington, who basically were supportive of the Town of Groton’s efforts.”

State Attorney General George Jepsen’s office, which had defended the state, deferred comment to the Department of Revenue Services.

“The department has read the decision and it appears the Connecticut Supreme Court has created a sales tax exemption for municipalities providing services,” Sarah Kaufman, spokeswoman for the Department of Revenue Services, said in an email. “The decision is very narrow and has limited application.”

k.florin@theday.com

Twitter: @KFLORIN