As states continue to struggle from declining sales tax collections some states are aggressively expanding the sales tax nexus definition beyond its physical presence requirements under Quill

In the last few months, states have been expanding sales tax nexus to include 'Cookie' nexus.  Basically, this means that if a resident visits a website of an out-of-state retailer, and that retailer leaves a cookie on the resident's computer, that cookie is a contributing factor towards establishing sales tax nexus with the out-of-state retailer in that state.

Massachusetts unveils "Cookie nexus":

In its first attempt to expand sales tax nexus to include cookies, Massachusetts issued Directive 17-1, which identified cookies stored on a customer's computer from a retailer's website as a factor contributing to establishing sales tax nexus for an out-of-state retailer.  According to the Directive, cookies facilitate retailer's sales by allowing retailers to track the behavior of their customers and giving the customer a customized shopping experience.  However, the Directive failed to make it past the courts to become law.  Undeterred, Massachusetts has drafted regulations to establish Cookie nexus, and inspired other states to add Cookie nexus to its definition of sales tax nexus.

Ohio enacts Cookie nexus into law:

In Ohio, the state's signed budget bill expanded Ohio's sales tax nexus by establishing sales tax nexus in Ohio for an out-of-state retailer if the retailer makes more than $500,000 in sales in Ohio combined with cookies, or "in-state software" stored or distributed on computers in the state to facilitate sales.     

Rhode Island most recent Cookie nexus state:

Rhode Island followed Massachusetts' lead and enacted a law that counts cookies or other data tracking tools stored in computers or distributed in the state as contributing to sales tax nexus for out-of-state retailers because it facilitates sales in Rhode Island for those out-of-state retailers.

While challenges to these laws in the future are likely, it is clear states are going to continue to push the traditional notion of physical presence as far as constitutionally possible.

Brian Greer

Written by Brian Greer