Massachusetts Sets ‘Cookie’ Tax Regulation Without Delay

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By Aaron Nicodemus

The Massachusetts Department of Revenue won’t delay the implementation of its new tax collection rules for out-of-state online retailers.

The proposed regulation orders online vendors to collect Massachusetts sales tax if they have property interests in or use in-state apps and “cookies,” starting Oct. 1.

Released July 28, proposed regulation 830 CMR 64H.1.7 provides that a vendor engaged “in making taxable sales in the commonwealth or that sells taxable tangible personal property or services for use in the commonwealth is subject to a sales or use tax collection duty when it is ‘engaged in business in the commonwealth’” under state law and meets U.S. constitutional requirements. 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.

Similar to Directive 17-1, which the Department of Revenue issued in April and later withdrew in June, the proposed regulation says that online vendors have an in-state physical presence with software and ‘cookies’ that consumers download onto phones, tablets, and computers to buy merchandise online. The U.S. Supreme Court’s 1992 decision in Quill Corp. v. North Dakota prohibits states from imposing sales and use tax collection obligations on vendors without an in-state physical presence.

After requesting public comment and holding an Aug. 24 hearing on its new regulation, the DOR sided with the arguments of brick-and-mortar retailers over those made by internet vendors.

Retailers See Issue Differently

Groups representing brick-and-mortar retailers told the DOR that they have been disadvantaged for years by the fact that online sellers don’t have to collect the state’s sales tax. Retailers also told the DOR that compliance with the new regulation wouldn’t be difficult for online retailers because the necessary software is readily available.

A group representing online retailers said they wouldn’t have enough time to purchase and install tax collection computer software by Oct. 1.

The Retailers Association of Massachusetts (RAM), the Retail Industry Leaders Association (RILA), and the International Council of Shopping Centers (ICSC) testified on behalf of brick-and-mortar retailers.

The internet vendors were represented by TechNet, a national, bipartisan network of more than 70 technology companies. A representative from Washington, D.C.-based NetChoice, which sued the DOR over Directive 17-1, attended the public hearing but didn’t comment.

“The Department finds the detailed comments of RAM and RILA, which were based primarily on their membership’s first-hand experience, more persuasive than those of TechNet,” Commissioner Christopher Harding said in the department’s Sept. 8 response to public comments. “Therefore, the Department concludes, particularly given the policy considerations as referenced above, that no significant compliance burden exists, and that no postponement of the regulation is appropriate.”

Bill Rennie, vice president of the Retailers Association of Massachusetts, told Bloomberg BNA Sept. 14 that his group’s members are pleased with the decision.

“Our members have been fighting for a level playing field on sales tax collection for a decade now,” he said.

TechNet had asked that the regulation be indefinitely postponed, or at least postponed until 2019.

New Burdens

Matthew Mincieli, TechNet’s executive director for Massachusetts and the Northeast, told Bloomberg BNA Sept. 13 that the regulations placed “new tax burdens on the commonwealth’s innovation ecosystem.”

“Without the input of the Legislature, the Department of Revenue is implementing first-in-the-nation remote online sales tax collection and remittance burdens on the innovation industry,” he said in an email. “Not only are there serious constitutional issues with this tax that will draw litigation against the commonwealth, the implementation date required by the regulation is unrealistic for those retailers that want to comply with the regulation. Companies need to purchase, install and product-map sales tax collection software and then integrate it with existing customer order and fulfillment systems.”

Harding disputed that Massachusetts is the first in the nation on the issue, saying, “TechNet stated that the approach taken by the Bright Line Rule is unprecedented, but the Department notes, inter alia, that Rhode Island and Ohio have both passed statutes asserting sales and use tax jurisdiction based on substantially similar facts, and numerous other states are currently asserting this jurisdiction based on similar bright line sales or delivery thresholds.”

To contact the reporter on this story: Aaron Nicodemus in Boston at

To contact the editor responsible for this story: Jennifer McLoughlin at

For More Information

Text of the DOR's response to public comments is at

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