On October 24, Crutchfield Corporation filed a declaratory judgment action challenging the Massachusetts Department of Revenue's "cookie" nexus regulation. The action asserts that the regulation violates the Commerce Clause of the United States Constitution and the Internet Tax Freedom Act. A challenge to the constitutionality of the regulation was expected after it went into effect on October 1. However, in an interesting twist, the first challenge was brought in Virginia—not Massachusetts. Virginia law permits a Virginia business to file suit to prevent another state from collecting sales and use tax that constitutes an undue burden on interstate commerce.


Massachusetts' sales tax nexus regulation for internet vendors1 takes the position that many internet vendors have sufficient physical presence in Massachusetts through the use of software and complimentary text data files, known as "cookies," located on the computers of their Massachusetts customers, thus satisfying the requirement of Quill, so long as the vendor makes sales to customers in the Commonwealth in excess of certain thresholds.2 Massachusetts argues it can require these vendors to collect and remit Massachusetts sales tax, even if the Supreme Court declines to overturn the "physical presence" requirement for substantial nexus set forth in Quill.3 The regulation is discussed in more detail in our prior Client Alert, available here.

This September, the Massachusetts Department of Revenue ("Department") began contacting certain internet vendors that were not registered to collect tax in Massachusetts to inform them of the regulation and their obligation under the regulation to collect Massachusetts sales tax on sales to Massachusetts customers beginning October 1. Crutchfield Corporation ("Crutchfield"), a Virginia-based internet vendor, received this notice.

Crutchfield's Declaratory Judgment Action

On October 24, Crutchfield brought an action for declaratory judgment against Commissioner Christopher Harding and Deputy Commissioner William Graham to stop the enforcement of the regulation against Crutchfield in the Circuit Court for Albemarle County, Virginia. In its complaint, Crutchfield argues that the regulation is barred by the Supreme Court's determination in Quill, violates the Commerce Clause of the U.S. Constitution, and also violates the Internet Tax Freedom Act.4

Strategic Decision to File in Virginia

In an unusual move for state tax litigation, Crutchfield brought its action challenging the Massachusetts regulation in a state court of another state. Crutchfield asserts that Virginia has jurisdiction to hear the appeal under Virginia Code § 8.01-184.1, which provides Virginia Circuit courts with original jurisdiction over civil actions seeking declaratory judgment where: (1) the party seeking relief is a business organized under the laws of, or has qualified to do business in, Virginia, and (2) the responding party is a government official of another state who asserts that the business is or was in the past obligated to collect sales or use tax based on the business's conduct occurring wholly or partially in Virginia.

Crutchfield, which is headquartered in Virginia, likely challenged the regulation in a Virginia state court in the hopes of arguing in a more sympathetic forum. In fact, the Virginia law allowing declaratory judgment actions against other state laws and regulations was sponsored by a current justice of the Virginia Supreme Court several years ago, when he was serving in the Virginia Senate.

What's next?

It will be interesting to watch the response from the Department on behalf of the Commissioner and Deputy Commissioner. Before the Virginia Circuit court addresses the legal questions raised by Crutchfield's challenge, we anticipate a lengthy battle over whether a Virginia court has jurisdiction to hear the case.

At the same time, the Crutchfield litigation is—at the moment—limited to whether Massachusetts can impose a tax collection obligation on Crutchfield. Thus, other internet vendors that satisfy the regulation's nexus requirements but have not yet started collecting Massachusetts sales tax still face a decision: whether to come into compliance or challenge the constitutionality of the regulation. For those companies based outside of Virginia, those challenges are likely going to proceed in the Massachusetts courts.


  1. 830 CMR 64H.1.7 (the "regulation").
  2. The regulation also provides that other types of third-party contacts in the state can create physical presence under Quill, e.g., contracts (or relationships) with content distribution networks or in-state representatives, or the provision of in-state services beyond delivery (e.g., payment processing, order fulfillment).
  3. 504 U.S. 298 (1992).
  4. P.L. 105-277 (1998).

This article is presented for informational purposes only and is not intended to constitute legal advice.