Today I want to talk about another facet of the use tax battle being waged by states against out of state internet vendors. For years internet vendors were not pressured by states to collect use tax from the state’s residents if the vendor was out of state and had no physical presence in the customer’s state.
The state’s restraint was not based upon any sense of fairness, but because of a 1992 United Supreme Court decision involving a mail order vendor. In that case the high court said that the out of state vendor could not be required to collect use tax from catalogue sales delivered into a state by common carrier, unless the vendor had a physical presence in the customer’s state.
Physical presence meant what you would expect: having an office, warehouse or employees in the state. But states began trying to get around the physical presence requirement as online sales took off. Now, some states say that a vendor can have physical presence if the vendor stores goods in the state with a third-party warehouse, or a fulfillment company like Fulfillment by Amazon.
Now, Massachusetts is reaching out to a vendor with no direct or indirect a physical presence. In the fall of 2017, the Massachusetts Department of Revenue adopted a new regulation, 830 CMR 64H.1.7 that says that a remote online vendor who has earned at least $500K in Massachusetts annual sales or who made at least 100 sales to Massachusetts customers in a year, must collect use tax on sales to Massachusetts customers if the vendor provides its app to Massachusetts customers or the vendor’s cookie is stored on the computer or other device of its Massachusetts customers.
That regulation was a bridge to far for a major Virginia electronics internet vendor. It has challenged the regulation in a Virginia court. The name of the lawsuit is Crutchfield Corp. v. Harding, Va. Cir. Ct., No. CL17001145-00, and was filed Oct. 24, 2017, with the Albemarle County Circuit.
Comment. The physical presence standard was adopted by the U.S. Supreme Court in 1992; long before online retailing. States have been waiting for either the high court or Congress to rewrite the law. Action by a Congress in gridlock looks problematic. However, help from the high court may be on the way. The U.S. Supreme Court has accepted a case that may result in a change in law that is more in line with present realities.
By John McCauley: I help people buy and sell businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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