Massachusetts swallows tax on internet cookies … for now
- Jul 5, 2017 | Gail Cole
The Massachusetts Department of Revenue (DOR) has revoked Directive 17-1: Requirement that Out-of-State Internet Vendors with Significant Massachusetts Sales Must Collect Sales or Use Tax. On June 28, the department published Directive 17-2: Revocation of DD 17-1 in Anticipation of a Proposed Regulation. However, this doesn’t mean the department is abandoning efforts to obtain tax revenue from non-collecting vendors. Rather, it is preparing to propose a new and improved regulation.
Just weeks before it was set to take effect, Directive 17-1 was challenged by NetChoice and the American Catalog Mailers Association (ACMA). They charged the directive was “invalid and unenforceable” because it was published without advance notice, it discriminated against internet sellers, and it taxed out-of-state sellers with no physical presence in Massachusetts.
Superior Court Justice Mitchell H. Kaplan noted in a Memorandum of Decision and Order (hats off to brannlaw.com for the link) that a DOR directive is “a public written statement … which provides details or supplementary information; clarifies ambiguities; resolves inconsistencies; or explains or elaborates upon issues, concerning current Department policy, practice or interpretation.” However, he continued, Directive 17-1 “was used to announce an abrupt change in the policy concerning an out-of-state internet merchant’s new obligation to register with the DOR and then collect and remit sales/use taxes from Massachusetts customers.” For this and other reasons, the judge determined the directive to be invalid.
New regulations for out-of-state sellers to be forthcoming
According to Directive 17-2, “The Department anticipates proposing regulations which, if adopted after public notice, comment, and hearing … would require large internet vendors to collect Massachusetts sales and use tax on a prospective basis under standards similar to those described in Directive 17-1.”