Massachusetts tax collectors have two words for online retailers: pay up.
Some Internet vendors were unsure how the state Department of Revenue would interpret the Supreme Court’s Wayfair decision in June. DOR just issued a memo to address the uncertainty, essentially telling them to start forking over sales taxes — for the past 12 months.
The Wayfair decision, you might recall, allowed South Dakota to require online sellers above a certain size to collect and remit sales taxes — rejecting a long-held legal understanding that physical presence in a state was required to do so. The gold rush was on: State officials across the US raced to follow South Dakota.
But not in Massachusetts. That’s because DOR adopted its own rules last October, after arguing that software and tracking codes on computers and phones constitute a physical presence. This “cookie tax” was a clever way — some say too clever — to get a jump on the Wayfair decision.
DOR argues its approach is legal, regardless of Wayfair. What DOR doesn’t say is this: The favorable ruling from the Supremes buttresses its position in any litigation against its cookie tax, such as that pesky lawsuit the agency faces in Virginia from Crutchfield, an electronics retailer.
Many states adopted tax-collection rules that would take effect next month, or later. But the DOR is sticking to its story: We started taxing you last fall. NetChoice, a trade group for online retailers, calls this retroactive taxation, and complains that companies are being unfairly hit up for the nearly nine months before the landmark ruling. DOR says it’s just doing its job.
Note two important caveats. On one end, Amazon: The Seattle-based retail gorilla started sweeping up sales taxes here in 2013, and now collects in 45 states. On the other, the mom-and-pops: Massachusetts exempts any sellers with fewer than 100 transactions or $500,000 worth of sales a year here.
For those with more than 100 transactions and $500,000 in sales annually here, the taxman is knocking.
Boston tax attorney Richard Jones says DOR is going down a list of the country’s largest online vendors and sending them notices if they haven’t filed. It’s up to the company, he says, to prove it’s under the threshold.
Many have already complied. At least 300 companies registered under the cookie tax rules, and the state collected $14 million through June 30 as a result. Now, DOR is going after the stragglers. That new money sure is nice for balancing the budget. But it’s a far cry from the $169 million or more annually that some anticipated if the Wayfair decision opened the doors to taxing online sales.
DOR says its memo just clarifies the status quo. To many brick-and-mortar shops, it’s about time. But to many online vendors, it must seem like a brand new world.