Massachusetts Adopts an Economic Nexus Standard For Remote Sellers and Vendors

This blog was last updated on June 27, 2021

Remote sales continue to be an ongoing concern for vendors trying to stay compliant with state and local taxing authorities.  Massachusetts joins a growing list of states that have adopted their own laws and regulations. On April 3, Massachusetts joined the ranks of states defying the Quill decision with its variation on economic nexus for remote sellers. As a growing number of states establish different economic nexus standards and reporting requirements, many companies continue to navigate the complex web of regulations wondering where and when they are obligated to collect tax on remote sales.

Massachusetts Directive 17-1

Massachusetts Directive 17-1 establishes an economic nexus standard for out-of-state vendors. Under this new rule, starting on July 1, the state would replace the existing “physical presence” standard as defined by the famous Quill v. North Dakota Supreme Court decision with a new requirement. This requirement specifies all vendors making at least $500,000 or more than 100 sales into Massachusetts will need to collect and remit tax when selling to Massachusetts customers. The state’s new approach to economic nexus for remote sellers is unconstitutional. As has been the case in other states that enacted similar rules, we expect litigation to stop the state from enforcing Directive 17-1.

A Complex Web of Regulations

Remote sales continue to be an ongoing concern for companies trying to stay compliant with state and local taxing authorities. With this step, Massachusetts joins a growing list of states including Alabama, Colorado, South Dakota, Vermont, Tennessee and Wyoming that have adopted their own laws and regulations. Unfortunately, requirements can differ greatly from state to state:

•  In contrast to Massachusetts’ $500,000 or 100+ sales threshold, Wyoming requires vendors to collect and remit when sales into the state reach just $100,000 or 200+ sales. Alabama, on the other hand, has a $250,000 threshold.
•  In Alabama, remote sellers can opt to take advantage of the Simplified Sellers Use Tax Remittance Program which significantly eases the compliance burden. The other states imposing economic nexus do not offer similar programs.
•  In Colorado and a handful of other states, sellers are not required to collect tax, but must comply with reporting obligations that may be more complicated than tax collection.

One Company’s Approach: Amazon

Amazon recently agreed to collect sales tax on transactions in every state that has a tax, recognizing the emerging trend of states aggressively going after out-of-state sellers. Rather than fight this trend, Amazon likely decided to focus on strategic business initiatives. Whether it’s via federal legislation or state rules leading to a Supreme Court showdown, many believe remote sellers will inevitably need to collect sales tax on transactions in all states where they have significant sales volume.

Managing Compliance Going Forward

This complex and rapidly changing compliance landscape creates unique challenges for organizations that have existing or growing ecommerce channels. It’s not surprising that organizations are struggling. Compliance should not be a barrier to growth. At the same time, ignoring existing and upcoming legal requirements is not a viable long term strategy. Proactive organizations should be looking for approaches to compliance and technology that help provide platforms for growth to help them manage taxability, exemptions and filing across all their business channels. Businesses are looking for solutions that provide the tools they need today and the ability to rapidly adapt in the future as online legislation continues to evolve.