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Massachusetts Proposes New Economic Nexus Regulation


Nexus

On July 28, 2017, the Massachusetts Department of Revenue issued a proposed regulation with economic nexus provisions which would take effect October 1, 2017. A public hearing on the proposed regulation is scheduled for August 24, 2017.  The proposed regulation is similar to a previous economic nexus directive issued by the state, which was revoked on June 28, 2017

 

Massachusetts has taken an alternative approach to the pure economic nexus approaches used by other states.  Rather, they are proposing that certain activities engaged in my internet vendors do meet the substantial physical presence standard due to the ownership and use of property in the state. 

 

Per the proposed regulation, an internet vendor with a principal place of business located outside the state that is not otherwise subject to tax is required to register, collect and remit Massachusetts sales or use tax with respect to its Massachusetts sales as follows:

 

  • For the period beginning October 1, 2017 through December 31, 2017, if during the preceding 12 months (October 1, 2016 to September 30, 2017) it had in excess of $500,000 in Massachusetts sales from transactions completed over the Internet and made sales resulting in a delivery into Massachusetts in 100 or more transactions.
  • For each calendar year beginning with 2018, if during the preceding calendar year it had in excess of $500,000 in Massachusetts sales from transactions completed over the Internet and made sales resulting in a delivery into Massachusetts in 100 or more transactions.

 

An internet vendor is defined as “a vendor that derives sales from transactions consummated over the Internet, whether such transactions are (1) completed on a website maintained or operated by the vendor itself, or a website maintained or operated by a related person or a person with which the vendor contracts, including a marketplace facilitator and/or (2) fulfilled by a related person or a person with which the vendor contracts.”

 

The proposed regulation states that the $500,000/100 transaction test only applies to an internet vendor whose only physical presence in Massachusetts is through property interests in and/or the use of in-state software and ancillary data (“cookies”) which are distributed to or stored on the computers or other devices of the vendor’s in-state customers; contracts and/or other relationships with content distribution networks (CDNs); and/or through 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.

 

However, internet and non-internet vendors with other contacts including the presence in the state of inventory or a contract with an in-state representative other than as described above has always established nexus and the $500,000/100 transaction rule does not apply.  Nexus is established at the time these activities and contacts began.

 

The proposed regulation also contains language stating that it does not violate the Internet Tax Freedom Act. It states that the regulation is non-discriminatory to e-commerce transactions because it asserts jurisdiction over all vendors (Internet or non-Internet) who have the contacts identified in the legislation and applies the same jurisdictional standards to all vendors (Internet or non-Internet) that are otherwise subject to tax. We will monitor and update this news items with developments. (Proposed 830 CMR 64H.1.7: Vendors Making Internet Sales)

 

UPDATE: On September 22, 2017, the Massachusetts Department of Revenue finalized the state’s proposed economic nexus regulation. The final regulation takes effect October 1, 2017. (830 CMR 64H.1.7: Vendors Making Internet Sales)

(11/20/2017)
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