Update: While Massachusetts lost the first round in the internet sale tax battle, they reissued a new version of the directive which went into effect on October 1, 2017. You can read about the new Massachusetts cookie tax here.
Massachusetts recently released Directive 17-1 in an attempt to compel more out-of-state online sellers to collect Massachusetts sales tax from Massachusetts buyers. This directive is similar to other states’ “economic nexus” laws in that it’s purpose is to require online sellers who do not currently have what is considered nexus under the Quill Corp. v. North Dakota definition of the term to be required to collect sales tax. But one thing that makes Massachusetts’ directive different from other similar laws is that it outlines broad nexus-creating factors, and one of those factors is storing cookies in a computer browser.
Browser Cookies Create Nexus?
Massachusetts directive is a long document, but the revolutionary part of it has to do with browser cookies creating sales tax nexus. This law would affect any online seller who makes more than $500,000 of sales into the state in a calendar year in more than 100 transactions.
In a four-paragraph section about software and sales tax nexus, the state alleges that any company who places cookies on a customer or potential customer’s computer in Massachusetts has Massachusetts sales tax nexus. Here’s part of what they have to say:
“Large Internet vendors store cookies on their customers’ computers and communication devices when the customers visit the vendor’s website. These files are stored locally on the customer’s computer or device the first time he or she visits the site and identify the customer on each subsequent visit. These files include “session cookies,” which are erased when a browser is closed, and “persistent cookies,” which are preserved across multiple browser sessions.”
This may sound like a big stretch, but the Massachusetts Department of Revenue’s overall goal is to show that eCommerce is different from mail order commerce as it was defined in the Quill case. In other words, they are saying that the current standards of sales tax nexus shouldn’t apply to eCommerce vendors because they have more access to in-state buyers.
Challenged in Court
This law was set to go into effect on July 1, 2017, Massachusetts may have to wait to collect their sales tax due to a law suit. Industry trade groups almost always sue when a law challenges the nexus precedent set by Quill, and this time is no exception. Retail trade associations NetChoice and the American Catalog Mailers Association have filed suit to block the law going into effect.
As per usual in these situations, the suit contends that this law violates both the federal Internet Tax Freedom Act and the commerce clause of the U.S. Constitution. From experience, I have a feeling that Massachusetts will not get their way on this. However, with the climate generally moving toward some form of internet sales tax, maybe this could be the case that makes it all the way to the Supreme Court and changes the law of the land.
Massachusetts’ new law is part of a larger trend. Check out our other articles on internet sales tax for more on this topic. Do you have questions or something to say about this new law? Start the conversation in the comments!