Massachusetts Online Vendor Rule May Violate Internet Tax Ban

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By Jennifer McLoughlin

Massachusetts’s new foray into remote sales taxation has roused questions about whether it crosses a line under the Internet Tax Freedom Act.

The Massachusetts Department of Revenue on April 3 released Directive 17-1, which requires sales tax collection from out-of-state internet vendors with annual in-state sales exceeding $500,000 and that made sales for in-state delivery in 100 or more transactions. In addition, the DOR explained that an internet vendor has physical presence—to fall within the state’s taxing authority under the U.S. Supreme Court’s Quill standard—through the ownership and use of in-state software and cookies, as well as utilization of content distribution networks and in-state representatives such as online marketplaces.

“Under the Internet Tax Freedom Act, which says that you can’t discriminate against e-commerce, if a court would find that there is not a difference between an internet vendor and a mail order vendor, then maybe it’s not valid under the Internet Tax Freedom Act,” Rebecca M. Balinskas, a New-York based tax associate with Morrison Foerster LLP, said during an April 6 webinar hosted by the Georgetown University Law Center.

The ITFA, which became law in February 2016, “has an anti-discrimination provision banning states and local governments from levying discriminatory internet-only taxes that are triggered when consumers do business or receive services online,” according to an April 7 insight from PricewaterhouseCoopers LLP’s state and local tax services. “Because this Directive focuses solely on internet vendors, could it possibly run afoul of the ITFA?”

Dancing Around ‘Quill’?

The directive sets forth the various ways that internet vendors have in-state physical presence within the meaning of the U.S. Supreme Court’s rule under Quill Corp. v. North Dakota, 504 U.S. 298 (1992). The 25-year-old case prohibits states from imposing sales and use tax collection obligations on vendors without an in-state physical presence.

According to the directive, Quill specifically intended to reaffirm a prior case “in the context of a fact pattern pertaining to a mail order vendor.” Throughout the directive, the state distinguishes the business and activities of internet vendors from those of mail order vendors.

“An Internet vendor with significant Massachusetts sales meets the statutory and constitutional standards that apply for purposes of the imposition of the commonwealth’s sales or use tax collection duty,” according to the directive, which details how it complies with the due process and commerce clause requirements under Quill. “For clarity and administrative simplicity, this Directive adopts an administrative bright line rule, rather than applying the sales and use tax collection requirements on a case by case basis.”

During a March 21 panel at a Tax Executives Institute Inc. event, Michael Fatale, deputy general counsel for the Massachusetts DOR, announced that unlike other states directly challenging Quill, such as Alabama and South Dakota, Massachusetts’s approach is designed to be consistent with Quill. However, many practitioners have questioned or disputed that the directive abides by Quill.

To contact the reporter on this story: Jennifer McLoughlin in Washington at

To contact the editor responsible for this story: Ryan C. Tuck at

For More Information

Text of the state directive is at

Text of PwC's insight is at

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