The Massachusetts Superior Court dismissed a lawsuit filed by online retailers against Massachusetts 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. The retailers in the lawsuit began to collect and remit Massachusetts sales tax on June 21, 2018, when Wayfair was decided. The retailers received a Notice of Intent to Assess taxes from Massachusetts for the period from October 1, 2017 up to June 21, 2018. The retailers argued that the enforcement of the state’s economic nexus regulation for that period is retroactive and not allowed under the commerce clause of the U.S. Constitution. The Massachusetts Superior Court dismissed the case because the retailers failed to exhaust their administrative remedies. The judge in the case said that it is not apparent that a decision in the case would have a significant impact beyond the six retailers who filed the lawsuit. As such, the judge declined to resolve the matter in the lawsuit by a declaratory judgement when the primary jurisdiction lies with an administrative agency.
Another lawsuit – filed by Crutchfield Corp., a Virginia-based online retailer – challenging the Massachusetts economic nexus regulation is yet to be decided. However, a recent U.S. Supreme Court decision, Franchise Tax Board of California v. Hyatt, 17-1299, ruled that states or their residents may not haul other states into their courts would likely result in a dismissal of the Crutchfield case. (Blue Nile LLC et al. v. Christopher C. Harding, Commissioner of the Massachusetts Department of Revenue, case number 1884CV03934-BLS1, in Massachusetts Superior Court, Suffolk County)
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)