Massachusetts Appellate Tax Board Stands by Pre-Wayfair Physical Presence Rule

Thoughtware Alert Published: Feb 24, 2021
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The Massachusetts Appellate Tax Board (Board) recently granted a summary judgment in favor of the taxpayer in U.S. Auto Parts Network, Inc. v. Commissioner of Revenue, Mass. App. Tax Bd., Docket No. C339523, 1/28/21. The Massachusetts Department of Revenue (Department) issued the taxpayer a sales tax assessment under 830 CMR 64H.1.7 (Internet Vendor Rule) for periods between September 2017 and June 2018 (note that South Dakota v. Wayfair was decided on June 21, 2018). The taxpayer did not have an actual physical presence in Massachusetts.

The Department is expected to appeal, and taxpayers should consider their options for preserving their refund rights for this nine-month period in light of Massachusetts’ statute of limitations and abatement procedures.


During the periods in question, the Internet Vendor Rule set a sales tax economic nexus threshold of:

  1. $500,000 in Massachusetts sales from transactions completed over the internet 
  2. 100 or more transactions resulting in delivery into the state

The Internet Vendor Rule also stated that “internet vendors with a large volume of Massachusetts sales invariably have [certain] contacts with the state that function to facilitate or enhance such in-state sales and constitute the requisite in-state physical presence[.]” In addition, the Internet Vendor Rule clarified that the following activities constitute an in-state presence and therefore nexus: “[P]roperty interests in and/or the use of in-state software, e.g., ‘apps’, and ancillary data, e.g., ‘cookies’, which are distributed to or stored on the computers or other physical communications devices of a vendor’s in-state customers, and may enable the vendor’s use of such physical devices.” 

Despite the Department’s argument that Wayfair ought to apply retroactively in this case, the Board ordered a refund for periods between September 2017 and June 2018. One factor emphasized by Wayfair was that South Dakota’s economic nexus statute was not retroactive in nature and therefore did not unduly burden interstate commerce under the Commerce Clause. Whether the Internet Vendor Rule’s idea of “cookie nexus” meets the pre-Wayfair physical presence rule remains to be seen on appeal. Cookies may be a modern functional equivalent to in-state physical presence for a retailer, but is there presence enough to alleviate the burden on interstate commerce? The notion of a “virtual presence” was not articulated by the U.S. Supreme Court until Wayfair

For additional guidance on U.S. Auto Parts Network, Inc. v. Commissioner of Revenue, contact your BKD Trusted Advisor™ or submit the Contact Us form below.

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