Massachusetts: FAQs for remote vendors, marketplaces
- Sep 27, 2019 | Gail Cole
New sales and use tax collection requirements take effect for remote vendors and marketplace facilitators in Massachusetts starting October 1, 2019.
Under the state’s new economic nexus policy, any remote vendor or marketplace facilitator that exceeds a certain sales volume in the state must collect and remit Massachusetts sales or use tax. This is a departure from the state’s cookie nexus policy, which applies only to certain internet vendors and is described below.
The Bay State’s economic nexus policy is inspired by the United States Supreme Court decision in South Dakota v. Wayfair, Inc. (June 21, 2018), which overruled the physical presence rule preventing states from requiring sellers with no physical presence in the state (remote vendors) to collect and remit sales tax. With the physical presence limitation removed, all states are now free to tax remote sales should they choose to do so.
Economic nexus starts October 1, 2019
Thus, effective October 1, 2019, any remote vendor whose Massachusetts sales exceed $100,000 in the current or prior calendar year must register with the Massachusetts Department of Revenue and collect and remit Massachusetts sales or use tax. The $100,000 threshold is based on taxable sales of tangible personal property and services, as well as exempt sales of products and services.
Likewise, remote marketplace facilitators with more than $100,000 in Massachusetts sales in the current or prior calendar year must register to collect tax starting October 1. The $100,000 threshold for marketplace facilitators is based on all taxable and exempt sales of tangible personal property and services made through the marketplace platform — their own and third-party (marketplace) sales. Marketplace facilitators with economic nexus must also collect and remit Massachusetts tax on behalf of third-party marketplace sellers.
When calculating their sales in the state, marketplace sellers should exclude sales made through marketplaces that collect and remit on their behalf.
More and more states are imposing this marketplace sales tax collection requirement on marketplace facilitators. By making marketplace facilitators responsible for the tax on all sales made through the platform, states can capture sales tax revenue from small remote vendors that would otherwise qualify for the small seller exception ($100,000 in Massachusetts).
In-state marketplace facilitators are required to collect and remit tax on their direct sales even if their total sales in the state don’t exceed the $100,000 economic nexus threshold. However, an in-state marketplace facilitator is only required to collect tax on marketplace sales if its total sales in Massachusetts (its own and third-party sales) exceed the $100,000 threshold.
The calendar year
The economic nexus threshold in Massachusetts is based on a “calendar year.” That might lead some sellers to believe they need to calculate sales made from January 1 through December 31 of any numbered year. Not so.
To determine if there’s a need to collect and remit tax starting October 1, 2019, a remote seller or marketplace facilitator must total all sales made in Massachusetts from October 1, 2018, through September 30, 2019. If economic nexus has been established, they must collect and remit sales tax during the fourth quarter of 2019 (October 1–December 31, 2019).
If a remote seller or marketplace has Massachusetts sales exceeding $100,000 prior to November 1, 2019 (or any subsequent year), it must register to collect Massachusetts sales tax on January 1, 2020 (or any subsequent year).
Remote retailers should monitor their Massachusetts sales at all times. If their sales into the state exceed $100,000 during a calendar year and they’re not already collecting sales tax, they must start collecting it by the first day of the first month that starts two months after the month in which economic nexus was established.
Businesses with a high volume of sales in the Bay State will likely always have economic nexus, while those that skirt the $100,000 threshold may sometimes have it and sometimes not.
Additional information is available in the Department of Revenue’s Remote Seller and Marketplace Facilitator FAQs.
The new economic nexus rule has a lower threshold than the state’s cookie nexus rule, and it applies to more remote vendors.
Massachusetts began enforcing cookie nexus on October 1, 2017, before the Supreme Court overruled the physical presence rule. Its cookie nexus rule was a brilliant, if in some opinions questionable, work-around for the physical presence limitation: It held that internet vendors establish a physical presence in the state through the software they place on in-state devices.
Thus, cookie nexus applies only to remote internet vendors with more than $500,000 in internet sales and at least 100 separate sales for delivery into Massachusetts during the preceding 12 months. Remote vendors meeting the $500,000 sales/100 transactions threshold aren’t required to collect and remit Massachusetts sales tax under the rule, provided they don’t make internet sales.
The Massachusetts Department of Revenue hasn’t repealed the cookie nexus rule. However, the new economic nexus rule essentially supersedes it because it has a lower threshold that applies to all remote vendors and marketplace facilitators — not merely remote internet vendors.
Massachusetts is one of more than a dozen states imposing new sales tax obligations on remote vendors and/or marketplace facilitators on October 1, 2019. You can read more about each state’s requirements in our state-by-state guides to economic nexus and marketplace facilitator laws.