United States

Massachusetts: Internet Vendor Nexus Regulation to be published in Massachusetts Register

Sep 18, 2017
From KPMG TaxWatch

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The Department of Revenue announced on September 13, 2017 that a controversial regulation addressing nexus for vendors making Internet sales (830 CMR 64H.1.7) has been filed with the Secretary of State’s Office and is expected to be published in the Massachusetts Register on September 22, 2017. Until it is published, the regulation is unofficial. The new regulation, which explains how general sales and use tax jurisdictional standards apply to Internet vendors, was first proposed on July 28, 2017 after a departmental directive containing much of the same language was rescinded. Per the regulation (consistent with the rescinded directive) Internet retailers with over $500,000 of sales into Massachusetts and 100 or more sales transactions delivered into Massachusetts are deemed to have nexus. Although it appears that Massachusetts is applying an economic nexus standard, the regulation notes that, unlike the catalog vendors discussed in Quill, Internet retailers do not limit their contacts with the state to mail and common carriers. Rather, modern-day Internet vendors (at least in the Department’s view) will invariably have one or more contacts with the state that will constitute an in-state physical presence. The three contacts specifically addressed in the regulation are:

  • Property interests in and/or the use of software (apps) and ancillary data (cookies) which are distributed to and stored on a vendor’s in-state customers’ computers and other physical devices that may enable the vendor’s use of the physical devices;
  • Contracts and/or other relationships with content distribution networks resulting in the use of in-state servers and/or the receipt of other related in-state services; and
  • 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.

The regulation specifically states that a vendor that lacks any of these contacts is not required to collect, even it is meets the sales threshold. The regulation also cautions that the rule applies only to vendors that do not have other nexus creating contacts with the state (e.g. storing inventory at an in-state warehouse). Finally, the rule notes that it does not only apply to Internet retailers; other, non-Internet vendors with similar contacts will likewise have a collection requirement.

In addition to publishing the rule, the Department will also publish its responses to comments received from the public on the rule. While certain of the commentators indicated that the bright-line rule was sound policy and that the compliance burdens were minimal, one commentator requested that the Department delay implementation of the regulation “indefinitely or until at least 2019.” The reasons for the requested delay were related to the compliance burdens that the rule would impose, to forestall litigation against the Department that might oppose the rule, to await court rulings in other states that could bring greater clarity to the general constitutional issues, or to allow the state time to attempt to establish similar uniform rules with other states. The Department declined to delay the regulation noting, among other things, that that no significant compliance burden appeared to exist.  

Vendors subject to the rule are required to begin collecting sales and use taxes starting October 1, 2017 if, during the preceding 12 months (from October 1, 2016 to September 30, 2017) they 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, collection would be required if the vendor met the sales/transaction requirements in the preceding calendar year. The regulation notes that vendors that had nexus under other theories (representational nexus or by virtue of having inventory stored in the state) should consider whether they want to come forward for past periods under the Department’s voluntary disclosure program. Please contact Joe Senier at 617-988-1025 or Tom Gangi at 617-988-1360 with questions.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.