By Joe Haberzetle, JD, LLM
Originally posted on June 20, 2017
UPDATED OCT. 2017: On June 28, 2017, the Massachusetts Department of Revenue issued Directive 17-2, revoking its earlier Directive 17-1 (below), which would have required remote sellers to collect sales tax on Massachusetts sales beginning July 1, 2017.
On September 22, 2017, Massachusetts adopted a new regulation, 830 CMR 64H.1.7 that requires remote sellers to collect tax from their Massachusetts customers on the same terms outlined in Directive 17-1. 830 CMR 64H.1.7 was made effective immediately upon adoption.
July: it typically marks the start of the dog days of summer, when most people’s thoughts are focused on barbecues, trips to the beach, and summer vacation plans, rather than state and local taxes. But for remote sellers (that is, businesses that sell primarily over the internet or mail order), July 1st is shaping up to be an important date this year.
New Vendor Reporting Requirements
First, Colorado’s long awaited (and litigated) vendor reporting requirements finally go into effect on July 1, 2017. Although the Colorado law was enacted way back in 2010, it was immediately challenged, eventually making its way up to the US Supreme Court. However, the dust has now settled from the litigation and Colorado has announced it will begin enforcing the law.
Under the Colorado law, any out-of-state vendor that makes at least $100,000 of annual sales to Colorado customers – and does not collect Colorado sales tax – must inform those customers that their purchases may be subject to the state’s use tax.
This notification may be provided on the customer invoice, or in another communication made in conjunction with the sale (an online order summary, for example).
Additionally, if individual customers purchase more than $500 worth of taxable goods in a year, these sellers must send them an “annual purchase summary” listing purchase dates and amounts. The annual purchase summary must also reiterate that Colorado consumers must pay use tax on all untaxed, nonexempt purchases.
Finally, the vendor must send the Colorado Department of Revenue an annual customer information report, listing the name, address, and total untaxed purchases of each Colorado customer.
The first of these annual summaries and customer reports are not due until early 2018. To be in full compliance with the new law, however, remote sellers with Colorado customers should start providing notifications to customers and compiling information on nontaxed sales as of July 1st.
Unfortunately, for sellers that make more than $100,000 of annual Colorado sales, the only way to avoid being subject to these requirements is to voluntarily start collecting tax from Colorado customers. It is a Hobson’s choice, to be sure, but one that the Colorado Legislature fully intended when it passed the law back in 2010.
Remote Sellers and State Sales Tax
The second reason July 1st is significant for remote sellers is that Massachusetts will start requiring sellers with more than $500,000 in Massachusetts sales, and at least 100 transactions with Massachusetts customers in the prior 12 months, to begin collecting the state’s sales tax on that date.
The state is following South Dakota, Alabama, and a smattering of other states that have begun imposing a duty to collect sales tax on remote sellers that have never set foot in the state.
Massachusetts is notable in that it is the most populous state yet to try to impose such a duty. Further, it is doing so by administrative pronouncement, without any change in the relevant laws or regulations.
This action would seem to be a clear violation of the US Supreme Court’s holdings in the 1967 National Bellas Hess and 1992 Quill decisions, which both confirmed that some physical presence on the part of the seller is required for a state to impose a duty to collect sales tax for the state.
However, in his dissenting opinion in a 2015 decision related to the Colorado remote seller law, Justice Kennedy stated that he felt that it was time to revisit those earlier decisions. The tax collection requirements now being imposed by Massachusetts, and other states, are a clear attempt to create just such a case.
What Can We Expect?
In response, two trade groups (NetChoice and the American Catalog Mailers Association) filed suit in Massachusetts state court on June 9th, seeking a preliminary injunction to block enforcement of the remote seller directive, as well as a declaratory judgment that the directive is unconstitutional.
A decision (at least on the injunction) is expected before the July 1st enforcement date. Thus, it may come down to the wire as to whether remote sellers must actually start collecting Massachusetts tax on that date, or will get some sort of a reprieve.
So, it looks like, while the rest of us are working hard to beat the summer heat, remote sellers may be feeling the heat of the Colorado and Massachusetts state taxing authorities. Save them a cool beverage, won’t you?
Seeking more information on the new legislation, or wondering how it might affect you? Contact Joe Haberzetle for more information.
© Clark Nuber PS, 2017. All Rights Reserved