BOSTON – Massachusetts Gov. Charlie Baker’s administration unexpectedly pulled its plan to collect sales taxes from out-of-state online retailers, the Boston Business Journal reported today. Originally set to go into effect July 1, the administration is expected to move a similar proposal as soon as this fall.
On Wednesday the Mass. Department of Revenue revoked an April proposal that would have subjected online retailers outside of the state to the same taxes as those with a presence in Mass. The April directive resulted in two lawsuits from retailing trade associations claiming it was unconstitutional.
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The DOR now plans to impose the same tax through regulation rather than a directive, justifying the tax on similar legal grounds by alleging that apps and files on a customer’s computer or phone count as a physical presence in Mass. The argument is an attempt to account for a 1992 U.S. Supreme Court ruling that states cannot impose sales taxes on catalog and mail-order businesses that do not have a physical in-state presence.
Lawsuits were brought forward by eCommerce trade group NetChoice and the American Catalog Mailers Association, who alleged that the Supreme Court decision applies to new technology as well as mail-order catalogs. The groups criticized the directive for overlooking the insight of businesses before it was finalized. The DOR said they plan to collect comments on the new version of the regulation.
The proposal was originally brought forward in January as part of a plan to close a budget gap, and was later expanded to call for the collection of sales taxes from retailers with more than $500,000 in sales and at least 100 transactions in Mass. annually. The administration will give up an estimated $30 million in annual tax revenue by pulling the directive.
Nicole Dotzenrod is a PBN staff writer. You can reach her by email at research@pbn.com or follow her on Twitter.
