Business as usual in Massachusetts after Supreme Court ruling on sales tax
The Massachusetts Department of Revenue has issued a statement on the impact of the Supreme Court’s decision in South Dakota v. Wayfair, Inc. on the state’s remote sales tax regulation. In a nutshell, Massachusetts is moving forward with business as usual.
States have long lacked the authority to tax businesses that don’t have a physical presence in the state: The Supreme Court of the United States last upheld this physical presence standard in 1992 in Quill Corp. v. North Dakota (Quill). On June 21, 2018, the court overruled Quill’s physical presence rule in South Dakota v. Wayfair, Inc. (Wayfair), finding it to be “unsound and incorrect.”
The case centered on South Dakota’s economic nexus law (SB 106), which imposes a tax collection obligation on out-of-state businesses meeting a certain threshold of economic activity in the state in the current or previous calendar year — either more than $100,000 in gross revenue from the sale of tangible personal property, electronically transferred property, or services delivered into South Dakota, or more than 200 separate transactions of the same.
It will take time for states to determine the effect of the Wayfair ruling on existing policy. As the Louisiana Department of Revenue explains, “While Louisiana is in a good position having adopted a provision very similar to the South Dakota law, we are still some time away from a final decision and seeing the full impact.”
That’s not the case in Massachusetts: “The Department of Revenue’s existing regulation 830 CMR 64H.1.7 (Vendors Making Internet Sales), which took effect in October 2017, continues to apply and is not impacted by the Supreme Court’s decision.”
The regulation points out that the Quill case involved a mail order company, and that there’s an important distinction between internet vendors and mail order vendors: “Internet vendors with a large volume of Massachusetts sales invariably have one or more of the following contacts with the state that function to facilitate or enhance such in-state sales and constitute the requisite in-state physical presence.” These are:
- In-state software (e.g., apps) and ancillary data (e.g., cookies), “which are distributed to or stored on the computers or other physical communications devices of a vendor’s in-state customers and may enable the vendor’s use of such physical devices;
- Contracts and/or other relationships with content distribution networks resulting in the use of in-state servers and other computer hardware, and/or the receipt of server or hardware-related in-state services; and/or
- Contracts and/or other relationships with online marketplace facilitators and/or delivery companies resulting in in-state services, including, but not limited to, payment processing and order fulfillment, order management, return processing or otherwise assisting with returns and exchanges, the preparation of sales reports or other analytics and consumer access to customer service.”
The Massachusetts regulation also “sets a bright line threshold” for out-of-state internet businesses: In the previous calendar year, they must have had $500,000 in Massachusetts sales from internet sales resulting in a delivery into Massachusetts in 100 or more transactions.
The Massachusetts regulation is being challenged by a Virginia-based internet seller that asserts it “runs afoul of the Commerce Clause physical presence standard as set forth in Quill.” The impact of the Wayfair ruling on this case remains to be seen.
In the meantime, Massachusetts seems set on enforcing what’s been called its “cookie nexus” regulation.
Businesses that don’t collect sales tax in all states where they sell should pay close attention to what those states are doing in the wake of the Wayfair ruling. Learn more about South Dakota v. Wayfair, Inc., and its potential impact on your business here.
The 2021 sales tax changes report: midyear update
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