The new directive, Directive 17-1: Requirement that Out-of-State Internet Vendors with Significant Massachusetts Sales Must Collect Sales or Use Tax 17-1, targets out-of-state businesses who solicit customers in the state by redefining (my word - I think the Massachusetts DOR would probably prefer "clarifying") what it means to be "engaged in business in the commonwealth."

In the Directive, the Commonwealth states that "Internet vendors do not limit their contacts with the state to mail and common carrier." Since retailers can easily reach out to consumers over the internet, the Commonwealth finds that "a business may be present in a State in a meaningful way without that presence being physical in the traditional sense of the term."

How? Cookies. Internet cookies are data files which are stored on your computer by a web browser. The files contain information about you - often, your name and interests (it's why you see ads for certain products on Facebook, for example, after you leave those sites) - that companies use to tailor your internet experience. Or, another way, to sell you more stuff.

Online retailers, according to the Directive, "almost invariably own software that is downloaded and used by in-state customers on their computers and communications devices" for online sales. Software - whether purchased at a store or downloaded from the internet - is typically considered to be tangible personal property (think of tangible personal property as things that you own that you can touch). That's the case under the sales tax laws of most states, including Massachusetts, which, at M.G.L. c. 64H, §1, defines tangible personal property to include a "transfer of standardized computer software, including but not limited to electronic, telephonic, or similar transfer, shall also be considered a transfer of tangible personal property."

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