Statement on Massachusetts Court Ruling
Statement of Steve DelBianco, Executive Director, NetChoice:
I am surprised to hear that the state plans another rule based on the same rationale as the one that failed this week. If the state tries again to blatantly violate Supreme Court precedent and the Internet Tax Freedom Act, we’ll re-file our lawsuit and look forward to another winning day in court.
The Court’s memorandum suggests that we would prevail in our claim that the rule violates the Internet Tax Freedom Act, which specifically prevents states from imposing taxes that discriminate against the internet.
Another claim is that Massachusetts is ignoring 150 years of federal doctrine saying that states may only impose sales tax mandates on businesses with a physical presence in their state. We don’t see how a court will agree that electrons flowing into a computer or smartphone comes anywhere close to a physical presence.
Background on Lawsuit
In June 2017, NetChoice filed suit against a Massachusetts regulation requiring out-of-state online retailers to collect sales taxes. The motion for a preliminary injunction can be found here, and the motion for declaratory judgement can be found here.
NetChoice Executive Director Steve DelBianco made the following statement on the lawsuit:
“The Massachusetts regulation blatantly violates Supreme Court precedent and the Internet Tax Freedom Act, a law Congress enacted specifically to stop states from imposing taxes that discriminate against the internet.
The Supreme Court has said for more than a century that states can only force businesses with a physical presence in their state to collect their sales taxes. Massachusetts is claiming that an out-of-state business is effectively setting up shop in the computers and smartphones of residents who enter the website address of that business. One wonders why the state didn’t say the same thing about businesses with telephone numbers that were dialed by Massachusetts consumers over the last 75 years.
State tax collectors must have been working in a dark basement in Boston, since they developed and adopted this regulation without public comment or even a single public hearing. But that’s a clear violation of state law regarding administrative procedures, as we argue in seeking an immediate injunction of the regulation.
Our lawsuit brings all this into the open, and we believe that a little sunshine will expose the legal flaws and unintended consequences on Massachusetts businesses.”
Key quotes from lawsuit:
“The new rule blatantly violates the provisions of ITFA, a statute crafted by Congress-and made permanent in 2016 — specifically to prevent the kinds of state tax obligations purportedly created by the Directive, namely, those targeting Internet vendors precisely because the vendors engage in electronic commerce.
The ITFA was expressly drafted with the intent of prohibiting states and localities from using Internet-based contacts as a factor in determining whether an out-of-state business has substantial nexus with the taxing jurisdiction.
The Commissioner and the Department lack the authority to disregard the Supreme Court’s controlling precedent in Quill based on the conclusion that subsequent developments may have undermined it.”
Excerpt from affidavit of ITFA author, former U.S. Rep. Chris Cox:
“I was the principal author of the lnternet Tax Freedom Act (“ITFA”), which was signed into law by President Bill Clinton on October 21,1998.
The principal purpose of the ITFA was to prevent commerce over the Internet — uniquely interstate because of its decentralized, packet-switched architecture — from being subjected to multiple and discriminatory taxation across a confusing patchwork of over 10,000 state and local taxing jurisdictions.
The explicit text of the ITFA outlaws Directive I 7- I ‘s reliance on the presence of a server for nexus.
As the author and principal sponsor of the ITFA, I can say without qualification that Directive 17-1 is precisely what the law was written to prevent.”