Massachusetts Issues Regulation on Revised Bright-Line Sales Tax Economic Nexus Standard for Internet Vendors, Sues Amazon Subsidiaries for Third-Party Vendor Data


    The Massachusetts Department of Revenue (DOR) has again promulgated guidance regarding a bright- line sales tax nexus test. On September 22, 2017, the DOR issued Regulation 830 C.M.R. 64H. 1.7 (the “Regulation”) following public comment over its withdrawn administrative guidance on economic nexus (Directive 17–1).

    The Regulation, effective October 1, 2017, largely mirrors the bright-line nexus rules of Directive 17–1. We reported on that rule in our May 22, 2017 Tax Alert.

    Massachusetts has been aggressively enforcing its sales tax nexus rules, and third-party sellers making sales through the Amazon Marketplace are particularly at risk of discovery.  On September 25, 2017, the DOR filed a motion in a Massachusetts court to enforce 4 summonses issued to Amazon subsidiaries to produce the sales and inventory records of third-party vendors making sales into the Commonwealth.


    Like the Directive, the Regulation states that an internet vendor will have nexus for sales and use tax purposes if the following tests are met:

    For the three-month period, October 1, 2017 to December 31, 2017: if, during the period October 1, 2016 to September 30, 2017, the internet vendor:
    • Had in excess of $500,000 in Massachusetts sales, and 
    • Made sales for delivery into Massachusetts in 100 or more transactions. 

    For each calendar year beginning with 2018: if, during the preceding calendar year, the internet vendor:

    • Had in excess of $500,000 of Massachusetts sales, and 
    • Made sales for delivery into Massachusetts in 100 or more transactions.

    The Regulation discusses that the DOR’s bright-line test satisfies the constitutional requirements of the Commerce Clause as interpreted in Quill Corp. v. North Dakota, 504 U.S. 298 (1992). Pursuant to Quill, a vendor must have physical presence in a state before that state can enforce a sales tax collection obligation on the vendor. The Regulation states that Internet vendors establish physical presence in Massachusetts when they have exploited the Massachusetts market and have: 

    • Property interests in and/or the use of in-state software and ancillary data (such as “apps” or “cookies”) stored on Massachusetts customer’s devices (computers, cell phones, etc.); or
    • The use of in-state servers (content distribution networks) and other computer hardware in Massachusetts; or
    • The use of in-state services from online marketplace facilitators or delivery companies, such as payment processing and order fulfillment, order management, return processing, the preparation of sales reports or other analytics and consumer access to customer service. 830 C.M.R. 64H. 1.7(1)(b)ii.a-c

    However, unlike the prior Directive, the Regulation explicitly creates an exception from the bright-line test for any internet vendor that does not have any of the contacts listed above. 

    Note: While the regulation targets Internet vendors, a non-internet vendor may also establish sales tax nexus if it has any of the three contact types mentioned above. Moreover, all vendors can establish nexus with the more traditional indications of physical presence (e.g., owning inventory in the state or contracting with an in-state representative).

    As an example of Massachusetts’ aggressive pursuit of out-of-state retailers, on September 25th, the DOR sued Inc. subsidiaries to obtain documents on their sales and inventory stored in Massachusetts.  In the complaint, the DOR said that it is seeking third-party vendor sales and inventory information to determine whether those vendors have sales and use tax liability in the state.  Amazon now collects and remits sales and use tax in all states that levy such taxes, but does not collect on behalf of third-party sellers making sales through the Amazon Marketplace.  Based on the Regulation, these third-party sellers may have created nexus by utilizing in-state services provided by Amazon, or by having inventory stored in the state.

    What Does CohnReznick Think?

    Massachusetts joins a growing list of states adopting an economic nexus standard for sales and use tax. While the Regulation establishes bright-line dollar and activity nexus thresholds, it is not clear whether Massachusetts’ asserted nexus position is permissible considering US Constitutional limitations of Quill. Taxpayers selling into Massachusetts should ensure that they review their specific situation in determining how and if they will react to Massachusetts’ sales tax economic nexus position.

    Massachusetts is one of 25 states participating in the Multistate Tax Commission’s Online Marketplace Seller Voluntary Disclosure Initiative, which allows third-party sellers to register for the state’s sales and use tax without the imposition of penalties and interest.  (Some states, but not Massachusetts, will waive the tax liability as well.)  The application period for this program ends October 17, 2017.


    For more information, please contact Matthew Nick, Director, State and Local Tax Services, at or 860-271-7933, or Kevin Michaelan, Tax Manager, at or 857-264-3912.

    Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.