A group representing some of the country’s biggest e-commerce companies, including eBay and Overstock.com, has sued the state in an effort to block a plan that requires online retailers to collect sales tax.
NetChoice teamed up with the American Catalog Mailers Association to sue the Department of Revenue in Suffolk Superior Court on Friday. The lawsuit was anticipated: Attempts in other states have brought court challenges.
The state’s new policy will take effect July 1, unless a judge grants NetChoice’s request for an injunction. The sales tax requirement kicks in for companies that sell more than $500,000 worth of goods a year in Massachusetts. They also need to conduct more than 100 transactions annually here to be affected.
The Department of Revenue says online vendors that put software or cookies on residents’ computers and phones or use servers housed locally should collect taxes because they have an adequate “nexus” in the state.
A Department of Revenue spokeswoman said her agency will work with the state attorney general’s office to defend the new directive.
“While we cannot comment in any detail on pending litigation, the Department of Revenue believes that the directive has a firm legal and regulatory basis, and it is important in providing a level playing field for Massachusetts retailers,” she said.
But NetChoice argues, among other things, that the directive violates a federal law that was specifically enacted to prevent taxes that discriminate against online commerce. The trade group also includes other big companies such as Facebook, Google, and StubHub.
“State tax collectors must have been working in a dark basement in Boston, since they developed and adopted this regulation without public comment or even a single public hearing,” NetChoice executive director Steve DelBianco said in a prepared statement. “Our lawsuit brings all this into the open, and we believe a little sunshine will expose the legal flaws and unintended consequences on Massachusetts businesses.”
NetChoice also argues that the directive violates a 1992 US Supreme Court decision known as “Quill” that requires an out-of-state seller to have a physical presence in a state to be responsible for collecting sales taxes.
For that reason, Amazon has been collecting sales taxes in Massachusetts since 2013. At the time, the Seattle-based retail giant owned a local robotics company, Kiva Systems, and also was building a substantial local workforce. Since then, Amazon has opened distribution centers in Stoughton and Fall River.
Jon Hurst, president of the Retailers Association of Massachusetts, praised the Baker administration’s effort to level the playing field for the mom-and-pop retailers that his group represents. Hurst said modern software makes it easy today for the big Internet sellers to collect sales taxes.
“For the last two decades, they’ve been stalling as long as they can,” Hurst said. “The bottom line is, they want to keep in Massachusetts their 6.25 percent pricing headstart over local brick-and-mortar stores.