6: Massachusetts Regulation 830 CMR 64H.1.7

States asserting tax nexus on any business using apps or browser cookies

Massachusetts Regulation 830 CMR 64H.1.7  – This rule says that apps and browser cookies create a “physical presence” when seen by Massachusetts residents.

Massachusetts tax collectors want to force out-of-state businesses to pay the Bay State’s sales tax. But the US Supreme Court’s Quill ruling holds that states can’t impose sales tax obligations on businesses who lack any physical presence in the state. (see iAWFUL #1)

Instead of directly contradicting Quill, the tax collectors in Boston decided to radically expand the commonsense definition of “physical presence”. The state issued Massachusetts Directive 17-1 last summer that says a website placing a “cookie” on a Massachusetts computer or smartphone creates “in-state business activity” and therefore meets the physical presence test of Quill.

Effectively, the state says that a couple of lines of computer code is the same as a physical store or warehouse.

The Massachusetts tax collectors thought themselves pretty clever.  But, NetChoice and the American Catalog Mailers Association (ACMA) filed suit against the Massachusetts directive last summer. A Massachusetts court enjoined the new directive because the Massachusetts tax collectors failed to follow the state’s own rule-making process.

But tax collectors did a do-over on the process and re-issued the regulation in October. NetChoice and ACMA answered with another lawsuit that is currently pending.  We don’t think the new Massachusetts rule will stand up to legal scrutiny mainly because it doesn’t even stand up to common sense.

In addition, the Virginia electronics retailer Crutchfield sued the Massachusetts tax collectors using a Virginia law designed to help businesses challenge states who defy the Quill physical presence test.

When Ohio’s Department of Taxation copied the Massachusetts approach to creating artificial nexus,  NetChoice and ACMA again filed suit to enjoin the regulation.

The Massachusetts cookie nexus rule makes #6 on iAWFUL for its attempt to mask discriminatory treatment of businesses that sell online with rhetoric calling for “equality.”

The iAWFUL reflects the editorial views of the Executive Director of NetChoice and does not necessarily reflect the views of all NetChoice members.

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