Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...
A Virginia-based online retailer has filed the first lawsuit against a new Massachusetts regulation requiring out-of-state internet vendors to collect state sales and use tax.
The lawsuit, filed Oct. 24 by Crutchfield Corp. in the Virginia Circuit Court for Albemarle County, “challenges the validity, enforceability, and constitutionality” of Massachusetts regulation 830 CMR 64H.1.7 ( Crutchfield Corp. v. Harding , Va. Cir. Ct., No. CL17001145-00, 10/24/17 ).
The lawsuit asserts that the regulation creates an undue burden on interstate commerce, is preempted by the International Tax Freedom Act, and violates restraints on state authority under the federal dormant commerce clause as interpreted by the Supreme Court’s 1992 decision in Quill Corp. v. North Dakota. That decision prohibits states from imposing sales and use tax collection obligations on vendors lacking an in-state physical presence.
The lawsuit also cites a Virginia law allowing a company to file suit against an official of another state that has asserted the company has a sales-and-use tax-collection obligation in the state.
Crutchfield, an online retailer for consumer electronics and automotive parts based in Charlottesville, Va., alleges it received a letter from the Massachusetts Department of Revenue on Sept. 14 ordering the company “to register for, collect, and remit Massachusetts sales and use tax under the rules set forth in the Massachusetts Regulation.”
“Although Crutchfield has no physical presence in Massachusetts, it has received repeated notices from Massachusetts officials asserting that it is required to collect and remit sales and use tax under the ‘economic nexus’ rules,” Matthew Schaefer, attorney at Brann & Isaacson in Lewiston, Maine, told Bloomberg Tax in an Oct. 25 email. “Crutchfield filed suit to protect its rights under the Commerce Clause and Quill, as well as under the federal Internet Tax Freedom Act, which prohibits state sales tax obligations that discriminate against electronic commerce, like the Massachusetts regulation.”
The regulation, which took effect Oct. 1, orders online vendors to collect Massachusetts sales tax if they have property interests in or use in-state apps and “cookies.” Vendors 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 Department of Revenue believes that the Regulation has a firm legal basis, and in its importance to provide a level playing field for Massachusetts retailers,” a Massachusetts DOR spokeswoman told Bloomberg Tax on background in an Oct. 25 email. She said the DOR is working closely with the Attorney General’s Office and can’t comment further on pending litigation.
The American Catalog Mailers Association, which filed a lawsuit that led the DOR to withdraw the first version of the regulation, Directive 17-1, applauded Crutchfield for “taking action to enforce its constitutional rights,” according to association president and executive director Hamilton Davison.
The lawsuit will “successfully prove that Virginia law rightfully protects this Charlottesville-based company from outside state tax collection efforts when such companies have no physical presence in such states as Massachusetts,” Davison told Bloomberg Tax in an Oct. 25 email.
The catalog mailers association and its e-commerce partner group NetChoice have been attempting to pull together $250,000 from their respective members and others to file their own lawsuit in Massachusetts against the new regulation.
Steve DelBianco, president and CEO of NetChoice, a lobbying group for e-commerce companies such as Facebook.com Inc., PayPal Inc., and eBay Inc., said the lawsuit “relies on an existing Virginia law designed to protect Virginia businesses from the reach of a tax collector from a state where the business has no physical presence whatsoever—which is exactly what Massachusetts is trying to do.”
“If the Virginia court finds that Crutchfield lacks physical presence in Massachusetts, all of us can re-focus on helping Congress to design appropriate national legislation to address sales tax on remote sellers,” he told Bloomberg Tax Oct. 25.
(Paragraph 11 has been corrected to reflect ACMA and NetChoice's ongoing campaign.)
To contact the reporter on this story: Aaron Nicodemus in Boston at email@example.com
To contact the editor responsible for this story: Jennifer McLoughlin at firstname.lastname@example.org
The complaint is at http://src.bna.com/tGs.
Copyright © 2017 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)