Upcoming Changes to the Massachusetts Sales/Use Tax Economic Nexus Provisions
As of mid-July, Massachusetts was the only U.S. state that had not yet passed a formal operating budget for the 2020 fiscal year, which began on July 1. The FY 2020 budget was finally signed by Governor Baker (R) on July 31, 2019.
The budget does not contain any new taxes, but it does forecast an increase in tax revenues, primarily driven by changes in the sales/use tax area. These changes, which take effect on October 1, 2019, are discussed in more detail below.
Sales/Use tax nexus background
It has now been more than a year since the U.S. Supreme Court’s decision in the Wayfair case, as described in BNN articles published in June and August of 2018. In that case, the Court upheld the State of South Dakota’s position that physical presence was no longer needed for sales/use tax nexus purposes; rather, economic nexus was sufficient. This decision overturned the Court’s landmark 1992 decision in Quill and has had significant repercussions for companies and individuals making sales to customers in the U.S.
Since the decision was released on June 21, 2018, other states have been releasing their own post-Wayfair economic nexus rules for remote sellers, and often for marketplace facilitators as well. At the time of this article publication, every state except Florida and Missouri has released some form of guidance. Many states have modeled their standards on the $100,000 of sales or 200 transactions rules that were tested by South Dakota in Wayfair.
Massachusetts, however, was one of a small minority of states that had implemented an economic nexus standard for certain remote sellers prior to the Wayfair decision. The Department of Revenue initially issued these rules via a directive (Directive 17-1), but eventually revoked this guidance via a second directive (Directive 17-2) prior to the initially stated effective date of July 1, 2017, and then ultimately replaced it with a regulation in September of 2017.
The rules outlined in the regulation, which took effect October 1, 2017, are often referred to as the “cookie nexus” rules. These rules require certain internet vendors and others who are deemed to have a physical presence in the Commonwealth, to register, collect and remit sales tax if they have more than $500,000 of sales and 100 or more transactions with customers in Massachusetts in the prior year. The regulation has been controversial, and has been challenged in court on at least two occasions, once in Massachusetts and once in Virginia, primarily due to the pre-Wayfair effective date of the regulation.
New Massachusetts statutory provisions effective October 1, 2019
As part of the recently finalized FY 2020 Massachusetts budget, the state’s sales tax laws were amended to contain economic nexus rules that are broadly applicable to remote sellers. These new rules, which take effect on October 1, 2019, require remote retailers to register and collect Massachusetts tax if their annual gross sales in either the prior or current year exceed $100,000. There is no longer a transactions prong, consistent with a trend we are seeing in other states as well.
These rules also include marketplace sellers and facilitators language, and waivers may be available to marketplace facilitators under certain circumstances. See generally H.B. 4000, Chapter 41.
We expect the Department of Revenue to issue guidance regarding the new economic nexus standards in the near future. The legislation also authorizes the promulgation of regulations.
While these new, lower and broader economic nexus provisions will raise more revenue, they also bring Massachusetts more in line with other states in the post-Wayfair world. Hopefully, this will make both compliance and enforcement easier for everyone involved.
If you would like to discuss how these new rules will impact you, please contact Leanne Scott, or your BNN tax advisor at 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, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.