More ‘Cookie’ Taxes If High Court Dodges Digital Tax Case: Panel

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By Ryan Prete

More states could imitate Massachusetts’ "cookie” nexus regime if the U.S. Supreme Court denies the first state petition seeking reconsideration of a 25-year-old opinion restricting states’ ability to tax remote retailers, according to leading state and local practitioners.

Karl Frieden, vice president and general counsel of the Council On State Taxation, said Dec. 5 at New York University’s Institute on State and Local Taxation that states will push legislation to capture e-commerce tax if the high court doesn’t accept South Dakota Attorney General Marty Jackley’s (R) petition for review. The petition seeks re-examination of a state Supreme Court ruling that found the state’s “economic nexus” law, S.B. 106 (codified as S.D. Codified Laws Chapter 10-64), unconstitutional under Quill Corp. v. North Dakota—the 1992 decision prohibiting states from imposing state sales and use tax collection obligations on vendors that don’t have a physical presence in-state.

Frieden said he expects states to mimic Massachusetts regulation 830 CMR 64H.1.7, which requires online vendors to collect state sales tax if they have property interests in or use in-state apps and “cookies.” Online vendors also must collect sales tax if they make 100 or more individual transactions and exceed $500,000 worth of in-state sales in a year. The regulation took effect Oct. 1.

“I would expect states to not challenge Quill head on, but instead go after the internet and cookies, which does, of course, differ from the issue of catalogs which Quill was devoted to,” Frieden said.

Seeking National Standard

Lila Disque, deputy general counsel with the Multistate Tax Commission, agreed with Frieden and said there’s a need for a national standard.

“I’m not even very sure how cookies work, but we need a standard to rely on. If the Massachusetts standard is reliable for taxpayers, then I would support it,” Disque said.

Disque said she’s looking forward to reviewing the response due Dec. 7 from the online retailers in the South Dakota case—Wayfair Inc., Newegg Inc., and Inc.—and said that she increasingly believes the high court may take up the case.

“If the U.S. Supreme Court takes up the Wayfair case, we could very well be looking at a new standard for the commerce clause,” she said.

‘Pot of Gold’

Meanwhile, Frieden said states would increasingly pursue remote sales tax regimes if Congress limits the federal deduction for taxes paid to state and local governments.

Both the House bill (H.R. 1) and the Senate-amended bill would retain a deduction up to $10,000 in property taxes paid to state and local governments. The federal code currently allows individuals to deduct the cost of sales, income, and property taxes paid at the state and local level.

“The long-term effect of federal tax reform means pressure for states,” Frieden said. “Each state continuing to pursue what they see as a pot of gold will mean a ‘death by a thousand cuts’ situation,” Frieden said.

To contact the reporter on this story: Ryan Prete in New York at

To contact the editor responsible for this story: Cheryl Saenz at

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