Massachusetts Department of Revenue Revokes Directive 17-1 with Directive 17-2

(Certain “large internet vendors” are temporarily off the sale and use tax hook)

Merrill Barter, Director, State & Local Tax Practice
June 30, 2017

Directive 17-1 is revoked just before it was to take effect on July 1

As we shared in a recent article, on April 3 the Massachusetts Department of Revenue (“DOR”) issued Directive 17-1, Requirement that Out-of-State Internet Vendors with Significant Massachusetts Sales Must Collect Sales or Use Tax.  This directive was scheduled to force certain “large internet vendors” to begin collecting sales and use taxes as of July 1, 2017.

However, on June 28, Directive 17-1 was revoked by Directive 17-2, In Anticipation of a Proposed Regulation.  As indicated in its title, Directive 17-2 anticipates the adoption of proposed regulations which “would require large Internet vendors to collect Massachusetts sales and use tax on a prospective basis under standards similar to those described in Directive 17-1.”

Why did this happen and what does it mean?

Since its introduction, Directive 17-1 was panned by many of the vendors that it would impact.  Among the arguments of its detractors was that the requirements it imposed should not have been able to come to life via a directive.  A directive is a written interpretation by the DOR.  By contrast, regulations, while also created by the DOR, represent a higher source of authority, with a well-defined path to creation and broader acceptance.  The DOR is now planning to substitute a regulation for the directive.  A regulation will take time to implement, and the DOR has not indicated when the initial draft will be available for public comment.

In the meantime, without Directive 17-1, the July 1, 2017 collection requirements no longer exist, and the implementation of the underlying rules is put on hold.  Stay tuned . . . we will update our readers as this whiplash continues.

If you have any questions about Massachusetts sales and use tax rules and how they may affect your business, please contact Merrill Barter, BNN’s State and Local Tax practice leader, at 1.800.244.7444.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.