A new Massachusetts regulation is making it easier to require online businesses with physical facilities outside of Massachusetts to pay state sales tax on products and services sold to customers within the state.
The new regulation expands the definition of what a company’s “physical presence” means within the state to internet cookies and downloadable apps, arguing that these data files are stored on computers of residents who do business with these internet companies.
The new regulation, Vendors Making Internet Sales, considers an online business to have a physical presence in Massachusetts if it meets the following criteria:
- property interests in and/or the use of in-state software (e.g., “apps”) and ancillary data (e.g., “cookies”) which are distributed to or stored on the computers or other physical communications devices of a vendor’s in-state customers, and may enable the vendor’s use of such physical devices;
- contracts and/or other relationships with content distribution networks resulting in the use of in-state servers and other computer hardware and/or the receipt of server or hardware-related in-state services; and/or
- contracts and/or other relationships with online marketplace facilitators and/or delivery companies resulting in in-state services, including, but not limited to, payment processing and order fulfillment, order management, return processing or otherwise assisting with returns and exchanges, the preparation of sales reports or other analytics and consumer access to customer service.
So who is affected? An Internet vendor with a principal place of business located outside the state that is not otherwise subject to tax is required to register, collect and remit Massachusetts sales or use tax if it meets these sales thresholds:
- For the period beginning October 1, 2017 through December 31, 2017, if during the preceding 12 months, October 1, 2016 to September 30, 2017, it had in excess of $500,000 in Massachusetts sales from transactions completed over the Internet and made sales resulting in a delivery into Massachusetts in 100 or more transactions.
- For each calendar year beginning with 2018, if during the preceding calendar year it had in excess of $500,000 in Massachusetts sales from transactions completed over the Internet and made sales resulting in a delivery into Massachusetts in 100 or more transactions.
There are two examples of exclusions to the regulation:
- The vendor’s only contacts with Massachusetts are that in-state customers may access a site on the vendor’s out-of-state computer servers; or
- A provider of Internet access service or online services is not deemed to be the agent of a vendor subject to this regulation solely as a result of (1) the display of such vendor’s information or content is on the provider’s out-of-state computer server or (2) the processing of orders through the provider’s out-of-state computer server.