Brann & Isaacson Files Challenge To Massachusetts Rule Targeting Internet Retailers

On Friday, June 9, 2017, American Catalog Mailers Association and NetChoice filed suit against the Commissioner of the Massachusetts Department of Revenue to block implementation of a Massachusetts rule, due to go into effect on July 1, 2017, under which certain Internet retailers without any physical presence in Massachusetts would nonetheless be required to collect and remit sales or use tax.

The Commissioner issued Department of Revenue Directive 17–1 without prior notice on April 3, 2017, announcing a new “administrative bright line rule,” effective July 1, 2017, that targets out–of–state Internet vendors with new Massachusetts sales and use tax collection obligations in violation of both federal constitutional limitations on state taxing power and the federal Internet Tax Freedom Act (ITFA). The ACMA and NetChoice allege that the Directive is invalid because it was adopted in violation of state laws requiring notice and comment from the public before issuing a new regulation; it is preempted by the provisions of the ITFA prohibiting state tax laws that discriminate against electronic commerce; and it violates the United States Constitution, by exceeding the limitations on state authority to regulate interstate commerce under the Commerce Clause as interpreted by the Supreme Court in Quill v. North Dakota,504 U.S. 298 (1992), and by depriving out-of-state Internet vendors of their rights under the Due Process Clause. The ACMA and NetChoice are seeking a preliminary injunction against implementation of the directive during the pendency of the litigation, and a judgment that the directive is invalid and without legal effect.

The ACMA and NetChoice are represented by George S. Isaacson, Matthew P. Schaefer, and Jamie Szal. The case is American Catalog Mailers Association and NetChoice v. Heffernan, Mass. Superior Court, Civil Action No. 1784CV01772.