The Massachusetts Department of Revenue recently enacted a regulation that places a tax collection obligation on e-commerce sellers which became effective on October 1. Sovos laid out the potential ramifications here
. In the last several days, Crutchfield Corp. (an internet and catalog retailer headquartered in Virginia) filed a legal complaint in their local court system against the MA DOR seeking to block enforcement of this new rule.
By way of a quick recap, the MA regulation imposes a tax collection burden on e-commerce sellers if they:
- Have sales in excess of $500,000 in Massachusetts derived from 100 or more transactions, and
- Have property in Massachusetts (via software or application cookies) or make use of in-state marketplace facilitators or order fulfillment companies.
Given that states may only impose sales tax requirement on vendors physically present in their jurisdiction, Massachusetts new nexus standard applicable to e-commerce sellers purports to clarify that such sellers are generally already physically present.
Therein lies the problem according to the complaint. While Crutchfield asserts that they have no physical presence in Massachusetts, the crux of their legal argument is that the new Regulation improperly singles out internet vendors and imposes a requirement which does not apply to other sellers. They likewise contend that their use of “electronic contacts” as a means of establishing physical presence violates the federal Internet Tax Freedom Act’s prohibition against discriminatory taxes on electronic commerce.
About the Author
Charles Maniace is the Director of Regulatory Analysis at Sovos. An attorney by trade, Chuck leads a team of attorneys and tax professionals responsible for all the tax and regulatory content that keeps Sovos clients continually complaint. Over his 15 year career in tax and regulatory automation, he has given talks and presentations on a variety of topics including The Taxation of High Tech Transactions, The Taxation of Remote Commerce, The Regulatory Implications of Brexit, The Rise of E-Audits, Form 1042-S Best Practices and Penalty Abatement Practices for Information Returns. Chuck is a member of the Massachusetts Bar and holds a BS in Business Economics from Bentley College, a JD from Boston University School of Law, and an LL.M in Taxation from Boston University School of Law.
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