New online sales tax to
take effect July 1

The Massachusetts State House at night. Photo by J. Graham Pearsall/BU News Service

By Shannon Golden
Boston University Statehouse Program

A version of this article appeared in The Sun Chronicle

BOSTON — Online shopping is a quick and convenient way to beat the crowds at the mall with the added perk of no sales tax from out-of-state vendors. But that may change soon.

The state Department of Revenue is telling online retailers to start collecting sales tax on Massachusetts purchases starting July 1.

Currently under federal law, only retailers that have a physical presence of operations in the state can be forced to collect sales tax. The new state policy would interpret online advertising in web browsers and the use of software applications as a company’s physical presence within the state.

Gov. Charlie Baker’s administration hopes the added revenue will raise $30 million for the next fiscal year.

Many believe that this act will bring immediate legal action against the Baker administration.

“This is really pushing the envelope to the extreme,” Richard Pomp, a law professor at the University of Connecticut, told the Boston Globe. “It’s creative. It’s aggressive. But ultimately you would not think it would be acceptable to a court.”

Online retailers have been able to avoid sales tax because of a 1992 Supreme Court decision, Quill Corp. v. North Dakota. The ruling, which sided with Quill, meant that a taxpayer must have a physical presence in a state in order to require collection of sales taxes for purchases made by in-state customers.

In 2013, the state revenue department was able to collect sales tax from the leading online retailer, Amazon, when they opened up an office in Cambridge and acquired a local robotics firm, Kiva Systems, creating a physical presence within the state.

The groundbreaking new directive that circumvents Quill’s limitations is aimed at retailers making more than $500,000 in annual sales or at least 100 transactions in Massachusetts. Those with fewer than 100 transactions within the state will be exempt.

“An internet vendor with significant Massachusetts sales meets the statutory and constitutional standards that apply for purposes of the imposition of the commonwealth’s sales or use tax collection duty,” the Department of Revenue’s directive states.

Bill Rennie, vice president of the Retailers Association of Massachusetts, told the Boston Globe that his group welcomes the help of taxing out-of-state online retailers.

“We’ve been waiting decades for a level playing field,” Rennie said. “We need some type of sales tax parity here…times have changed.

“Online retail is everywhere,” Rennie said. “You’ve got really, really big internet companies selling into Massachusetts the same products that our members sell.”

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