Effective Date: October 1, 2017; October 1, 2019 for lowered threshold
Threshold: $500,000 and 100 or more transactions; $100,000, effective October 1, 2019
Measurement Date: For the period beginning October 1, 2017 through December 31, 2017, if during the preceding 12 months. For each calendar year beginning with 2018, if during the preceding calendar year.
Includable Transactions: Gross sales excluding marketplace sales for individual sellers if the marketplace facilitator is collecting
When You Need to Register Once You Exceed the Threshold: Next transaction
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 The proposed regulation is similar to a previous economic nexus directive issued by the state, which was revoked on June 28, 2017.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:
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)
UPDATE: On October 24, 2017, Crutchfield Corp., a Virginia-based online retailer, filed a lawsuit challenging the validity, enforceability and constitutionality of the Massachusetts economic nexus regulation (Crutchfield Corp. v. Harding, Va. Cir. Ct., No. CL17001145-00, 10/24/17).
UPDATE: On June 22, 2018, the state issued a news release saying that the existing regulation continues to apply and is not affected by the Supreme Court’s decision in South Dakota v. Wayfair.
UPDATE: The Massachusetts Superior Court dismissed a lawsuit filed by online retailers regarding retroactive application of the state’s economic nexus regulation. The lawsuit regards the application of the economic nexus standard from October 1, 2017 – when Massachusetts enacted its economic nexus regulation – and June 21, 2018, when the U.S. Supreme Court handed down its decision in South Dakota v. Wayfair. Read our news item for more information: Massachusetts Court Dismisses Lawsuit Regarding Retroactive Application of Economic Nexus Regulation
UPDATE: Massachusetts enacted legislation, H. 4000, on July 31, 2019 that lowers the state’s economic nexus threshold from $500,000 to $100,000 and removes the transaction threshold, effective October 1, 2019. The new law also creates new requirements for marketplace facilitators. For more information, read our news item.
UPDATE: In an October 9, 2019 letter opinion, Virginia’s 16th Judicial Circuit granted the motion to dismiss filed by Massachusetts revenue officials in the Crutchfield Corp. v. Harding case, holding that the court lacked jurisdiction over Crutchfield’s challenge to Massachusetts’ economic nexus regulation. Crutchfield Corp., a Virginia-based online retailer, had filed the lawsuit challenging the validity, enforceability and constitutionality of the economic nexus regulation on October 24, 2017. Oral arguments in the case had been held on August 30, 2019. The Virginia court did not rely on the U.S. Supreme Court’s recent decision in Franchise Tax Board of California v. Hyatt, in which the court ruled that states or their residents may not take other states into their courts, to dismiss the case. Rather, the letter opinion states that “The Commissioner’s alleged Virginia contacts with Crutchfield were confined to the form letters/notices sent to Crutchfield. These three contacts are insufficient to confer jurisdiction over the Commissioner’s objection to the Court’s exercise of jurisdiction.” Crutchfield will continue its efforts against this law in a case in Massachusetts along with other cases that are pending in the Appellate Tax Board. The state has also emergency and proposed regulations that will repeal the cookie nexus provision as of October 1, 2019 when its new economic nexus provisions are effective. (Crutchfield v. Commonwealth of Massachusetts, October 9, 2019)