Six Online Retailers Sue State. What Will Follow?

by Sarah Craig January 25, 2019

TaxJar wants to make it easy for you to stay updated on the ins and outs of sales tax, especially following this summer’s Wayfair decision. Because we know so many online retailers pay close attention to what’s happening with sales tax laws, it’s our goal to keep you current on state economic nexus laws, marketplace facilitator laws, taxable goods and services, and everything in between.

With this in mind, a recent piece of news piqued our interest and caught our eye. You may have seen the December 2018 lawsuit in which six different retailers from Massachusetts decided to sue the state to avoid paying millions of dollars in back sales tax.

What’s the Case About?

While the South Dakota vs. Wayfair case became national news in June 2018, the Massachusetts Department of Revenue had their own sales tax laws from October 2017 that required out-of-state, online retailers to collect and pay sales tax.

As a result of The Supreme Court’s decision, six major retailers — including, Blue Nile LLC, U.S. Auto Parts Network Inc., Silver Star Brands Inc., Sweetwater Sound Inc., and Balsam Brands Inc., — are contending they shouldn’t have to pay retroactive sales tax on any purchases made between October 2017 and the 2018 Wayfair decision.

The stores supposedly owe $2.9 million to the state in back taxes from this interim period, and would be required to pay it out of their own pockets. This is because the federal decision hadn’t yet defined “economic nexus,” and therefore, the out-of-state businesses weren’t legally required to collect sales tax from their customers.

The plaintiffs believe the MDoR’s October 2017 regulations discriminate against out-of-state retailers because they only targeted online stores and not physical out-of-state businesses that sold items like catalogs or television commercials.

So, What Does this all Mean?

Even though the Supreme Court’s decision was more than six months ago, everyone from giant corporations to family-owned shops continues to feel its impact. Trying to navigate how this decision affects your own business can be tricky as well as costly.

TaxJar will continue to keep a watchful eye over this case, as it poses many questions. What’s ahead for these brands? There’s a good chance this won’t be the last lawsuit focused on sales tax. Will there eventually be a federal law for all remote sellers that holds everyone to the same standards? Will the states agree to move forward with equal thresholds? Is it fair for small states with minimal revenue to be held to the same standards of larger states with bigger economies? Only time will tell.

At TaxJar, we recommend you follow your city, county, and state laws closely as well as monitor outcomes in cases like the Massachusetts lawsuit. To stay-in-the-know, subscribe to the TaxJar blog and we’ll update you on this and all other sales tax news that might impact your eCommerce business. 

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