The electronics retailer, which has no physical presence in Massachusetts, says the state's demand that it collect and remit tax from online sales there is unconstitutional.

Massachusetts officials want Crutchfield Corp. to fork over sales taxes for online transactions made in their state, and the Virginia-based consumer electronics retailer is going to court over the request.

Crutchfield, No. 190 in the Internet Retailer 2017 Top 500on Tuesday filed a complaint in a Virginia court seeking a declaratory judgment to exempt it from Massachusetts’ efforts to collect sales tax for online transactions, despite the fact that Crutchfield has no physical presence there.

The retailer maintains that Massachusetts’ attempt to collect sales tax violates federal law, as determined by a 1992 U.S. Supreme Court decision in a case generally known as Quill Corp. v. North Dakota. The court in that case ruled that Quill, a catalog retailer, did not have to collect sales tax in North Dakota where it had no physical presence. Online retailers have used that decision to argue that they need not collect sales tax in states where they do not have physical locations.

“The physical presence requirement of Quill currently remains the law of the land under the U.S. Constitution. The states, and all state agencies, including the commissioner and the MDOR [Massachusetts Department of Revenue], are bound by Quill,” Crutchfield states in the lawsuit.

Crutchfield filed its action in Virginia because the commonwealth has a law that allows Virginia businesses to sue for declaratory judgement against a state that asserts a sales tax obligation when the business has no physical presence.


The Massachusetts Department of Revenue had informed Crutchfield that, by Oct. 1, it must register with the state as an internet vendor because it had more than $500,000 in online sales and more than 100 transactions resulting in delivery to Massachusetts in the preceding 12 months. An online retailer meeting those criteria is obligated to register for, collect and remit Massachusetts sales and use tax, according the department of revenue. Businesses that don’t comply face statutory penalties and interest charges.

Crutchfield’s complaint asks the Virginia court to prevent enforcement of the Massachusetts regulation and seeks payment of its attorney’s fees and costs, plus “further and other relief as the court deems just and proper.”

The office of Massachusetts Department of Revenue says it believes that its regulation has a firm legal basis and is key to provide a level playing field for Massachusetts retailers. The department says it is working closely with the attorney general’s office and cannot comment further on pending litigation.

Martin Eisenstein, one of the attorneys representing Crutchfield and managing partner at law firm Brann & Isaacson, says the retailer is protected by Virginia law from being forced by Massachusetts, where it is has no physical presence, to collect and remit sales tax.

“We hope for a quick decision,” he said Wednesday. “The sting of sales and use tax collection is that Crutchfield is not the taxpayer. The person who would owe any tax is the purchaser. Crutchfield has been left in limbo. There’s been a demand that it do something and the consequences are that it’s responsible for [the tax] and goes forward and collects it. That’s an unfair decision.”


Steve DelBianco, executive director of e-commerce advocacy group NetChoice, said, “If the Virginia court finds that Crutchfield lacks physical presence in Massachusetts, all of us can re-focus on helping Congress to design appropriate national legislation to address sales tax on remote sellers.”

Congress has for several years considered various bills that would require all or some online retailers to collect sales tax in states where they have no physical presence, but no bill has made it through both houses. Frustrated with the lack of congressional action, several states have passed bills that explicitly challenged the Quill ruling in hopes of bringing the question of online sales tax back to the U.S. Supreme Court.

On Oct. 2, the state of South Dakota petitioned the U.S. Supreme Court to review a decision by the South Dakota Supreme Court in the state’s case against online retailers Wayfair Inc., No. 16 in the Internet Retailer 2017 Top 500; Newegg Inc. (No. 21); and Inc. (No. 30). The state’s request came after the South Dakota Supreme Court in September upheld a lower court’s decision barring enforcement of a 2016 state law that requires larger e-retailers to collect sales tax from South Dakota residents and remit them to the state. In passing the 2016 law, South Dakota lawmakers made clear they wanted to give the U.S. Supreme Court an opportunity to reconsider Quill.

Responses to the South Dakota petition are due Nov. 2, and the high court would then decide whether accept the case–a decision not likely until early 2018, Eisenstein says.