Supreme Court Announces New Sales Tax Standard: Maine and Massachusetts Implications

The Supreme Court issued its decision in South Dakota v. Wayfair on June 21, 2018, granting states greater power to require out-of-state sellers to collect sales tax, and thus dramatically affecting the obligations of many retail businesses throughout the country. The Court declared its 1992 decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), which established a “physical presence” requirement for sales tax collection, “unsound and incorrect” and upheld South Dakota’s law that requires sellers to collect sales tax if, on an annual basis, they have 200 or more sales in the state or in-state sales exceeding $100,000.

The Court’s decision means that remote sellers—such as online sellers and companies that sell their products via platforms like Amazon—may now be required by states to collect sales tax in jurisdictions in which they merely have a certain level of economic presence. Under the Quill standard, “physical presence” was required for a jurisdiction to impose a sales tax collection requirement.

Following South Dakota’s lead, and while Wayfair wound its way to the Supreme Court, other states adopted similar “economic presence” laws. The Court’s decision thus has the immediate effect of validating these laws. States that do not currently have such laws on the books are likely to quickly enact similar standards, or else miss out on the additional sales tax revenue that the Court’s decision allows. 

Sales made to Maine and Massachusetts residents will be immediately impacted by the Court’s decision, as both states have laws similar to South Dakota’s already on the books. 

  • Maine applies the same thresholds as South Dakota—a remote seller must collect and remit sales tax if, on an annual basis, the seller has sales in Maine that exceed $100,000, or the seller engages in at least 200 separate transactions in the state. 
  • Massachusetts took a slightly different approach, enacting a regulation that was intended to withstand constitutional challenge, even under the old Quill framework. Under this regulation, Massachusetts takes the position that “physical presence” is established through the use of in-state software, in-state advertising cookies, contracts with a content distribution network, in-state representatives, or the provision of additional services in-state beyond delivery of goods. Under this regulation, any internet vendor that meets these physical presence requirements is required to collect and remit Massachusetts sales tax for its sales to Massachusetts customers if, during the previous 12 months, the seller had $500,000 or more in sales to Massachusetts customers completed over the internet, and the seller completed 100 or more transactions that were delivered to Massachusetts. 

Please contact firm tax partners Jonathan A. Block or Sarah H. Beard with any questions or if you would like to discuss your sales tax obligations under the new Wayfair standard. Jon can be reached at 207.791.1179 or jblock@pierceatwood.com, and Sarah at 207.791.1378 or sbeard@pierceatwood.com.