Massachusetts Adopts Bright Line Sales Tax Economic Nexus Standard for Internet Vendors


    The Massachusetts Department of Revenue (DOR) issued Directive 17-1 (Directive) in which the DOR announced the adoption of a sales tax economic nexus standard for internet vendors in the Commonwealth effective July 1, 2017. 

    The stated purpose of the Directive is to provide clarity and administrative simplicity to the existing sales tax rules by establishing, for internet vendors, a bright-line sales tax nexus threshold as opposed to applying those rules on a case-by-case basis. The bright line nexus rule, which is effective July 1, 2017, is based on a dollar and business activity threshold. Per the Directive, the DOR will presume that an internet vendor has sales tax nexus: 

    • For the six-month period, July 1, 2017 to December 31, 2017: if the internet vendor had in excess of $500,000 in Massachusetts sales and made sales for delivery into Massachusetts in 100 or more transactions, during the period July 1, 2016 to June 30, 2017; 
    • For calendar years beginning in 2018 and thereafter: if the internet vendor had in excess of $500,000 of Massachusetts sales and made sales for delivery into Massachusetts in 100 or more transactions, during the preceding calendar year. 


    The Directive provides that a vendor who (1) is “engaged in business in the Commonwealth,” and (2) meets the jurisdictional requirements set forth in Quill Corp. v. North Dakota, 504 U.S. 298 (1992) is required to collect sale or use tax on taxable sales to Massachusetts customers. 

    The Directive then addresses why the DOR feels that internet sellers have nexus with Massachusetts, by analyzing Quill and comparing current internet sellers to mail order sellers (in Quill, a remote mail-order seller was found not to have sales tax nexus as it did not have a physical presence in the state). The Directive provides that modern-day internet vendors and businesses “may be present in a State in a meaningful way without that presence being physical in the traditional sense of the term." Following is a brief summary of the DOR’s argument as to why internet vendors have nexus with Massachusetts: 

    Mobile Apps – internet vendors almost invariably own software that is downloaded and used by customers on their communication devices. The Directive asserts that apps enhance and even facilitate in-state sales by implementing web-based shopping carts, permitting customers to compare products and evaluate product reviews, and by tracking their customers’ preferences and locations. The Directive notes the ubiquitous nature of internet vendor software and provides that such software often is the means itself of enabling in-state sales. The Directive concludes that ownership of in-state software installed on customer’s computers and communication devices constitutes an in-state physical presence within the meaning of Quill

    Cookies – while cookies or text data files are not software, the use of cookies enhances and facilitates internet vendor sales by allowing customers to readily log into his or her account and store items in a shopping cart. Cookies also allow an internet vendor to track a customer’s behavior over time and target specific ads to each customer. The DOR emphasized that the use of in-state cookies “results in in-state business activity by such vendor that distinguishes such vendors from the mail order vendors that were evaluated by Quill.” 

    Content Distribution Networks – the Directive asserts that content distribution networks (“CDNs”) allow internet vendors to offer web pages to customers more rapidly and efficiently. Often, these third-party service providers use hardware in close proximity to the internet users. These services increase the likelihood that customers will return for future purchases. The DOR asserts that the CDNs perform activities on behalf of internet vendors that are associated with the vendor’s ability to establish a market for its sales, and, thus, establishing an in-state physical presence on behalf of such vendor. 

    Online Marketplaces – internet vendors may establish in-state physical presence through the use of state representatives commonly called “online marketplaces.” Internet vendors often sell their goods and services through these mediums. The Directive emphasizes that while these online marketplaces may be virtual, some of the services provided by the online marketplace in connection with the sale of the vendor’s products will be physical in nature. “Because these latter, physical services operate to establish and maintain the Internet vendor’s market, these services, when performed in the state, will result in an in-state physical presence on the part of such vendor.” 

    What Does CohnReznick Think? 

    Massachusetts joins a growing list of states adopting an economic nexus standard for sales and use tax. While the Directive establishes a bright line dollar and activity nexus threshold, 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. 


    For more information, please contact Scott Smith, Director, State and Local Tax Services, at or 973-364-7720, or Matthew Nick, Director, State and Local Tax Services, at or 860-271-7933.

    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.