Reed Smith Client Alerts

On September 13, Massachusetts issued a final regulation that will require many “internet vendors” without traditional “physical presence” in Massachusetts to collect and remit sales and use tax, effective beginning October 1.1 Despite numerous comments and objections to the draft, the final regulation is substantially similar to the proposed regulation issued in July, and Directive 17-1 that was withdrawn in June. The regulation represents yet another attempt by a state to work around the U.S. Supreme Court’s decision in Quill Corp v. North Dakota, and to require remote sellers to collect tax from sales to in-state customers.


A new Massachusetts regulation, effective October 1, takes the position that many internet vendors have already created physical presence in Massachusetts through the use of software, advertising cookies, and other third-party contacts in the state, and can be required to collect and remit Massachusetts sales tax without overturning the “physical presence” requirement reaffirmed by the U.S. Supreme Court in Quill.2 The regulation is sure to see immediate challenges, and remote sellers that are not collecting Massachusetts sales and use tax should follow those developments closely. If South Dakota’s litigation directly challenging Quill fails, the “Massachusetts approach” could be the next method states latch onto in their unsuccessful (thus far) decades-long quest to remove the “physical presence” requirement for sales tax collection.


On April 3, 2017, the Department issued Directive 17-1 (the “Directive”), which would have imposed sales tax collection responsibilities on any vendor that had (i) more than 100 sales delivered into Massachusetts, and (ii) Massachusetts sales in excess of $500,000 during a 12-month period. The new collection and reporting requirements were scheduled to take effect July 1, 2017, but they were revoked by the Department prior to the effective date.3 In its notice revoking the Directive, the Department indicated that it would instead be proposing regulations that would seek to achieve the objectives laid out in Directive 17-1.4