Mass. SJC Affirms U.S. Auto Parts’ Victory in Closely Watched State Tax Dispute

On December 22, 2022, the Massachusetts Supreme Judicial Court, in a unanimous opinion written by Justice Wendlandt, held that the Massachusetts Department of Revenue cannot apply the U.S. Supreme Court’s opinion in South Dakota v. Wayfair retroactively against Brann & Isaacson client, U.S. Auto Parts Network, Inc. The Court held that the Department’s Internet Vendor Rule incorporated the physical presence nexus standard of Quill Corp. v. North Dakota, and, under that standard, cookies, mobile apps, and content delivery networks (CDNs) are not sufficient to create a physical presence for state tax purposes.

Lead counsel for U.S. Auto Parts, senior partner George Isaacson commented, “We are pleased that the SJC agreed with the Appellate Tax Board that it would be deeply unfair to permit the Department of Revenue retroactively to apply a new Supreme Court rule to penalize taxpayers for prior lawful conduct. As the Court held, the Internet Vendor Rule was issued under Quill and was invalid under Quill because it purported to treat mere electrons as establishing a physical presence.”

In addition to Isaacson (gisaacson@brannlaw.com), U.S. Auto Parts was represented by Martin Eisenstein (meisenstein@brannlaw.com), David Swetnam-Burland (dsb@brannlaw.com), and Jamie Szal (jszal@brannlaw.com). The case is U.S. Auto Parts Network, Inc. v. Commissioner of Revenue, SJC-13283.