Source: http://masslegalresources.com/tag/catalog
Timestamp: 2019-04-20 17:05:09+00:00

Document:
1 Plaintiff American Catalog Mailers Association is a trade association representing companies engaged in catalog marketing. Plaintiff NetChoice is a trade association of internet companies engaged in online sales.
Massachusetts Administrative Procedure Act (G.L. c. 30A, the APA); Count Two asserts that the Directive is preempted by the federal Internet Tax Freedom Act (47 U.S.C. § 151, the IFTA); Count Three asserts that the Directive violates the Commerce Clause of the United States Constitution; and Count Four asserts that the Directive violates the Due Process Clause of the United States Constitution. The case came before the court on June 27, 2017, three days before the Directive was to take effect, on the plaintiffs’ motion for a preliminary injunction enjoining the Commissioner from enforcing the Directive.
In their moving papers, the plaintiffs relied on Counts One and Two in pressing their request for preliminary injunctive relief. At the hearing, both the plaintiffs and the Commissioner agreed that as to Count One, which alleges that the Directive was invalid because not promulgated as a regulation pursuant to the APA, there were no facts in dispute, the issue had been fully briefed, and that Count could be resolved as a matter of law on the materials submitted. In consideration of the parties’ memoranda and oral arguments, the court finds that the Directive established a new policy that substantially altered the rights and interests of the regulated parties and therefore had to be promulgated pursuant to sections 2 or 3 of Chapter 30A. It is undisputed that it was not. The court therefore finds that the Directive is invalid and of no force or effect. The court will not address the Counts Two-Four, but rather dismiss those counts without prejudice. If the Directive is promulgated as a regulation, the plaintiffs’ federal preemption and constitutional claims may be reasserted in a new action.
reach all transactions except those expressly exempted, in which tangible personal property is sold inside or outside the Commonwealth for storage, use, or consumption within the Commonwealth.” Comm’r of Rev. v. J.C. Penney Co., 431 Mass. 684, 687 (2000) (internal citations omitted). Consumers pay the sales tax when they make purchases from a vendor in Massachusetts. G.L. c. 64H, § 2. When a consumer purchases goods outside Massachusetts, but does not pay sales/use tax to the vendor, the consumer has a duty to remit the use tax. G.L. c. 64I, § 3. Not surprisingly, consumers who purchase goods outside Massachusetts for use in this state frequently do not comply with their obligation to report the transaction and remit the use tax, which is therefore never collected. However, under G.L. c. 64I, § 4, an out-of-state vendor of goods for use in the Commonwealth is required to collect and remit to Massachusetts the use tax when that vendor is “engaged in business in the commonwealth.” G.L. c. 64H, § 1 provides the definition of what it means to be engaged in business in the Commonwealth.
or use tax may turn on the presence in the taxing State of a small sales force, plant, or office. This artificiality, however, is more than offset by the benefits of a clear rule. Such a rule firmly establishes the boundaries of legitimate state authority to impose a duty to collect sales and use taxes and reduces litigation concerning those taxes. . . . Moreover, a bright-line rule in the area of sales and use taxes also encourages settled expectations and, in doing so, fosters investment by businesses and individuals.” Id. at 316. The Supreme Court has not modified the “physical presence” test reaffirmed in Quill, notwithstanding the growth in internet merchandising since that 1992 decision.
Consistent with the Quill physical presence test and the limitations imposed by Congress under the ITFA, until the Directive issued on April 3, 2017, the Massachusetts DOR had not required an internet retailer to collect and remit sales or use taxes on goods sold for delivery in Massachusetts, if it did not have a physical presence in Massachusetts. The Directive abruptly changed that policy. According to the plaintiffs, without any advance warning to the internet sales industry.
An Internet vendor with a principal place of business located outside the state is required to register, collect and remit Massachusetts sales or use tax with respect to Massachusetts sale[s] as follows.
a. For the six-month period, July 1, 2017, if during the preceding 12 months, July 1, 2016 to June 30, 2017, it had in excess of $ 500,000 in Massachusetts sales and made sales for delivery into Massachusetts in 100 or more transactions.
b. For each calendar year beginning with 2018 if during the preceding calendar year it had in excess of $ 500,000 in Massachusetts sales and made sales for delivery into Massachusetts in 100 or more transactions.
Third, “[l]arge internet vendors routinely contract with other persons as in-state representatives that result in the creation of an in-state physical presence.” The Commissioner then goes on to describe some of the relationships that some of these large internet vendors may have with in-state businesses that provide services to the vendors and/or their customers.
The Directive does not explain how the Commissioner came to know these facts that the Commissioner contends establish that any internet vendor that sells $ 500,000 worth of goods for delivery into Massachusetts, in at least 100 transactions, is physically present in Massachusetts.
2 The balance of the definition sets out certain exceptions to the general definition of regulation not relevant to this case.
3 §2 addresses regulations that require a public hearing before promulgation and § 3 those that do not. The court need not consider which type of regulation the substance of the Directive is.
either § 2 or § 3 of the APA has been invalidly enacted and is without force or effect. See Kneeland Liquor, Inc. v. Alcoholic Beverages Control Comm., 345 Mass. 228, 235 (1962).
The Commissioner’s principal argument in response to the plaintiffs’ claim that the Directive is void for failure to comply with the APA, is that the legislature has exempted the DOR from the requirements of the APA: “In the specific area of taxes, . . . , the Legislature has enacted legislation supplementing the APA and recognizing the [DOR’s] authority to announce changes in tax policy through various public written statements—including ‘directives’—that need not have to comply with the APA’s procedural requirements.” The Commissioner contends that these legislative exemptions are found in sections 3 and 26(j)(1) of Chapter 62C added by St. 1998, c. 485, §§9, 11. The court disagrees.
The commissioner shall provide public notice to taxpayers of any changes in the tax law, including but not limited to, changes in department of revenue policy, regulatory changes, recent court decisions and the department of revenue’s policy with regard to recent court decisions by making all regulations, technical information releases, letter rulings, directives, guides and other publications available to the public at the department and at other public facilities at the discretion of the commissioner.
The commissioner shall not make any assessment under this chapter if that assessment is based on a change in policy unless such change in policy first is announced to taxpayers pursuant to the promulgation of a validly adopted regulation or the issuance of a technical information release, directive, administrative procedure or other similar public statement of equivalent formality that explains the change in policy.
nature of the policy change being implemented, it simply lists the different types of notice that the Commissioner may use. Indeed, the first type of change in policy listed is “the promulgation of a validly adopted regulation.” The court finds that the Legislature did not, in either sentence, express an intention to relieve the Commissioner of the obligation to comply with the protections afforded regulated persons under the APA when his actions constitute “a requirement of general application and future effect adopted by an agency to implement or interpret the law enforced or administered by it.” Id. at 234.
4 The quoted passage is from the version of 830 C.M.R. § 62C.3.1 in effect on April 3, 2017 when the Directive issued. It has since been amended.
5 The Commissioner argues that Geoffrey, Inc. v. Comm’r of Revenue, 453 Mass 17 (2009); Aloha Freightways, Inc. v. Comm’r of Revenue, 428 Mass. 418 (1998); and New York Times Co. v. Comm’r of Revenue, 427 Mass. 399 (1998) may be read to suggest that the SJC has implied that the Commissioner may, unlike other agencies, proceed to enact new policies of general application and effect through directives not regulations. The question of whether a directive was announcing a new policy as opposed to providing clarity to existing policies was not raised (or alluded to) in any of those cases. Moreover, in the first two the directives referred to appear to be providing clarity to existing positions; and, the third does not involve a directive at all. The court has not been presented with any case in which the SJC has suggested that the APA does not apply to the DOR in the same manner as other state agencies.
The parties appear to be in agreement that there is such a thing as an advisory or informational pronouncement by an administrative agency that may be issued lawfully in relation to a regulation (or a statute) without going through the procedures required for promulgation of a regulation. They might also agree that it is no use trying to frame an airtight definition of such pronouncements which would serve to distinguish them from regulations; on the other hand, it may be possible to point to factors of differentiation in light of the functions or purposes that are furthered by notice and hearing in the given context.
Formal presentation by the agency with opportunity for ‘input’ and debate by the persons affected, and deliberate resolution of issues by the officials, may be thought wasteful of time and energy where the agency is intending to fill in the details or clear up an ambiguity of an established policy, rather than to inaugurate a material change of policy. One can imagine, too, that in the degree that what the agency puts forward is complex, or of broad or pervasive coverage, notice and hearing will appear increasingly plausible and useful, so that the agency’s proposition will be denominated a regulation.
6 The plaintiffs submitted affidavits suggesting that the cost of implementing systems necessary to comply with the Directive would be in excess of $ 250,000 for each affected internet merchant.
sets out in the Directive, which acknowledges the limitations placed on state taxing authorities by Quill, and then finds facts that he contends establish “physical presence” in Massachusetts for all internet vendors who engage in $ 500,000 of transactions with Massachusetts customers in a year. The basis for his factual findings is not included in the Discussion. It appears to this court that the Directive is a paradigm example of “a requirement of general application and future effect adopted by an agency to implement or interpret the law enforced or administered by it.” Kneeland Liquor, 346 Mass. at 234. Affected persons and businesses should have the opportunity for notice, input, and perhaps debate before it is effective provided them by the APA.
For the foregoing reasons, Final Judgment shall enter (a) as to Count One of the Complaint, declaring that the Directive is a regulation promulgated without compliance with Sections 2 or 3 of G.L. Chapter 30A and, therefore, invalid; and (b) as to Counts Two through Four dismissing these counts without prejudice.
Apparently also on June 28, 2017, the defendant (DOR) revoked the Directive and filed with the court pleadings entitled: “Defendant’s Notice of Immediate Revocation of Department of Revenue Directive 17-1” and “Defendant’s Notice of Objection to Entry of Final Declaratory Judgment on Count I.” The Decision was, however, completed and signed by the Court well before it received these two pleadings. Thereafter, the DOR filed the pending motion in which it asks the court to vacate the Decision.
The court denies the motion to the extent that it requests that the Decision be vacated. Count I of the complaint presented a pure issue of law. The parties submitted what appeared to be comprehensive briefs addressing it. There was a lengthy oral argument on the issue on June 27, 2017. The Directive was to go into effect on July 1, 2017. During argument, the DOR rejected the court’s suggestion that it voluntarily delay the date by which internet retailers would have to be in compliance with the Directive. During argument, the court made quite clear its intention to enter a final judgment on Count One (and dismiss the other counts), if it concluded that the Directive was a regulation, as it was undisputed that it had not been promulgated following the procedures required by the Administrative Procedures Act. The DOR expressed no objection to this approach until the following day. By then, the Court had completed and signed the Decision while the matters raised by Count One were still actively in dispute between the parties to this litigation.
However, before the separate Final Judgment required by Mass.R.Civ.P. 58 (a) could issue, the court learned that the Directive had been revoked “effective immediately.” It is the court’s understanding that, thereafter, the DOR began the process of promulgating the Directive as a regulation in accordance with the APA. It therefore appears that the Directive that was the subject of this litigation is no longer in effect, nor is it likely to be resurrected other than as a regulation. In consequence, the issues raised by the complaint are no longer presently in dispute, but rather have become moot.
Final Judgment shall enter dismissing the Complaint on the grounds that the claims asserted therein have become moot.
In all other respects the motion is DENIED.

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