Reed Smith Client Alerts

On October 24, Crutchfield Corporation filed a declaratory judgment action challenging the Massachusetts Department of Revenue’s “cookie” nexus regulation. The action asserts that the regulation violates the Commerce Clause of the United States Constitution and the Internet Tax Freedom Act. A challenge to the constitutionality of the regulation was expected after it went into effect on October 1. However, in an interesting twist, the first challenge was brought in Virginia—not Massachusetts. Virginia law permits a Virginia business to file suit to prevent another state from collecting sales and use tax that constitutes an undue burden on interstate commerce.


Massachusetts’ sales tax nexus regulation for internet vendors1 takes the position that many internet vendors have sufficient physical presence in Massachusetts through the use of software and complimentary text data files, known as “cookies,” located on the computers of their Massachusetts customers, thus satisfying the requirement of Quill, so long as the vendor makes sales to customers in the Commonwealth in excess of certain thresholds.2 Massachusetts argues it can require these vendors to collect and remit Massachusetts sales tax, even if the Supreme Court declines to overturn the “physical presence” requirement for substantial nexus set forth in Quill.3 The regulation is discussed in more detail in our prior Client Alert, available here.