On September 22, 2017, the Massachusetts Department of Revenue (the “Department”) officially promulgated a remote vendor sales tax nexus regulation, 830 CMRH.1.7: Vendors Making Internet Sales (the “Regulation”). The Regulation sets forth the following bright-line nexus threshold:
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 with respect to its Massachusetts sales […] if during the preceding 12 months […] it had in excess of […]” (1) “$500,000 in Massachusetts sales from transactions completed over the Internet […]”; and (2) “made sales resulting in a delivery into Massachusetts in 100 or more transactions.
Nexus expansion continues to be a hot topic in state and location taxation. States have become increasingly aggressive in subjecting entities without a physical presence to taxation, often by asserting that the out-of-state company has “economic nexus” with the state. In a recent decision, the New Jersey Tax Court has reinvigorated a nexus ghost from tax years past, seemingly looking to the unitary business principle (or at least the hallmarks of a unitary business) to conclude that a corporate limited partner was subject to tax in New Jersey by virtue of its interest in a partnership that was doing business in the state. Preserve II, Inc. v. Director, Div. of Taxation, Docket No. 010920-2013 (N.J. Tax Ct. Oct. 4, 2017).
State efforts to undermine or challenge the Quill Corp. v. North Dakota, 504 U.S. 298 (1992) physical presence standard escalated this summer with the enactment of two sales and use tax laws targeting marketplace operators. Minnesota House File 1 (“H.F. 1”) and Washington House Bill 2163 (“H.B. 2163”), signed into law on May 30, 2017 and July 7, 2017, respectively, impose sales and use tax obligations on certain marketplaces that facilitate the sales of out-of-state third party retailers. Minnesota and Washington are the first two states to enact such laws, and similar legislation is currently pending in the Pennsylvania General Assembly.
On June 12, 2017, Congressman Jim Sensenbrenner (R-WI) reintroduced into Congress H.R. 2887, also known as the “No Regulation Without Representation Act of 2017” (the “Legislation”), which codifies the physical presence nexus requirement established by the U.S. Supreme Court in Quill v. North Dakota, 504 U.S. 298 (1992) (“Quill”). The Legislation is interesting for several reasons: (1) it proposes to employ a result that is the exact opposite of the recent trend to overturn Quill; (2) it defines “tax” broadly to include net income and business activity taxes; and (3) it expands the law to require a physical presence for states to regulate a person’s activity in interstate commerce outside of the tax context.