United States

Massachusetts internet seller nexus regulation becomes effective

Regulation comes after department policy directive was challenged


On Sept. 22, 2017, The Massachusetts Department of Revenue’s remote and internet seller sales and use tax nexus regulation became effective. The regulation comes shortly after the department revoked Directive 17-1, a policy directive implementing similar nexus standards. A Massachusetts Superior Court had found the policy directive invalid, identifying the directive as a regulation that failed to comply with proper promulgation procedures. For more information on that policy directive, please read our alert, Massachusetts revokes economic sales tax nexus policy.

Through the 2017 state legislative sessions, a number of states have mounted direct statutory and regulatory challenges to the sales tax physical presence standard adopted through the U.S. Supreme Court’s 1992 decision Quill v. North Dakota. However, the department’s approach is not a direct challenge, rather, the regulation expands the traditional physical presence nexus standard through affiliate relationships, marketplace providers and so-called “cookie nexus.”

Accordingly, internet vendors with a principal place of business outside of Massachusetts that are not otherwise subject to tax in the Commonwealth, must register, collect and remit Massachusetts sales or use tax as specified according to the following periods:

a)    For the period beginning Oct. 1, 2017 through Dec. 31, 2017, if during the preceding 12 months, Oct. 1, 2016 to Sept. 30, 2017, the vendor 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.

b)    For each calendar year beginning with 2018, if during the preceding calendar year the vendor 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.

Additionally, for the rule to apply to internet vendors, one of the following forms of contact must be present:

1)     “Cookie nexus.” This includes property interests in and/or the use of in-state software (apps and internet cookies) which are distributed to or stored on the computers or other physical communications devices of a vendor’s in-state customers, and may enable the vendor’s use of such physical devices;

2)     Contracts and/or other relationships with content distribution networks resulting in the use of in-state servers and/or related in-state services; and/or

3)     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.

If an internet vendor meets both the sales thresholds and in-state contact requirements, there may be applicable exemptions from the sales tax collection and remittance obligation. Accordingly, the regulation will not apply to an internet vendor if the vendor’s only contacts with the state are in-state customers accessing a site on the vendor’s out-of-state computer server. Additionally, a provider of internet access service or online services provider will not be considered an agent of a vendor (for purposes of the internet vendor regulation) solely as a result of 1) the display of such vendor’s information or content on the provider’s out-of-state computer service, or 2) the processing of orders through the provider’s out-of-state computer server.

Remote and internet vendors should remember that the new policy is not the only method a remote retailer could establish nexus in the commonwealth of Massachusetts. Maintaining inventory in the state, employee or sales force travel into the state, or maintaining agents that perform activities in the state may also establish sales and use tax nexus.


Cookie and marketplace provider nexus are nexus expansion concepts that have only recently become more popular. Minnesota and Washington state both enacted marketplace provider nexus provisions in 2017, although neither are yet effective, and in 2016, Arizona provided its own guidance on the sales tax collection obligation of marketplace providers. Additionally, Ohio included in its 2018 fiscal year budget a “cookie nexus” provision similar to Massachusett’s new regulation. These provisions attempt to address the changing internet and e-commerce landscape occurring over state borders by expanding existing nexus concepts, without wholly challenging Quill.

Internet vendors need to be aware of these sales tax expansion provisions as well the direct challenges to Quill. Legal challenges to those laws are moving forward, and all eyes will be on whether the U.S. Supreme Court agrees to hear a Quill challenge, 25 years after it first ruled on the issue. The taxpayers that challenged the department’s Directive 17-1 are also challenging many of the remote seller provisions in other states. It seems unlikely that this new regulation will be free from controversy or challenge. However, affected remote internet vendors should still speak to their tax advisors about whether the in-state contacts and sales thresholds are met, and how to approach compliance if necessary. 


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