Being a state and local tax practitioner has always been a stressful job. Stress eating is certainly understandable, especially around the holidays. But lately, it appears, some states have been trying to force cookies down our throats. Not the baked kind, but the electronic variety.
As avid readers of my blog know, the states have been very creative in attributing the more than de minimus physical presence required by the U.S. Supreme Court in Quill  to internet retailers, so as to create sales tax nexus and require the retailers to collect sales tax. Some of these approaches, especially those attributing the presence of a representative or agent to an otherwise out of state retailer, certainly seem to make sense, and if the Supreme Court were ever to decide to review agency-type nexus in the context of internet sales, my bet is the state taxing authorities would prevail.
Where did the half-baked idea of cookie nexus come from? That’s right, proposals are out there to equate the “placement” of electronic cookies on users’ electronic devices on par with having property in the state and accordingly allegedly satisfying the more than de minimus physical presence still required by Quill. Though none of the proposals have gone this far, potentially a retailer with absolutely no contacts with a state other than a minimal amount of sales, could be required to collect the sales tax in a state where an electronic cookie was placed on a computer located within that state.
In a 2017 Directive, which fortunately they were compelled to repeal, the Massachusetts Department of Revenue stated:
When stored on magnetic tape, disc, or computer chip, this software, or set of instructions, is physically manifested in machine readable form by arranging electrons, by use of an electric current, to create either a magnetized or unmagnetized space.
Yet despite the Directive’s repeal, final Massachusetts regulations, effective in October, incorporate the cookie concept in determining sales tax nexus. To make matters worse, Connecticut has just announced their intent incorporate cookies in their regulations.
Since I was an accounting major at the undergraduate level I never learned about the arranging of electrons. They skipped this in law school as well. However, I have and continued to learn about our clients’ constantly evolving activities so that Berdon is in best position to advise of the continually evolving, confused and possibly unconstitutional state of nexus. I know it’s a lot to ask the feds to step in, especially as we watch the struggle to get a tax bill through, but isn’t it time to compel the states to get in line and uniformly proclaim whether or not cookies are good for us?
If you have questions, contact me at WBerkowitz@BerdonLLP.com or your Berdon advisor.
Wayne Berkowitz, a tax partner and head of the State and Local Tax Group at Berdon LLP, advises on the unique requirements of governments and municipalities across the nation.
 Readers who have grown up watching Sesame Street (when it was still free on PBS) will immediately know that I am referring to my favorite song from the show, “Put down the Ducky.” Just so you know that I am in good company, the song was performed in whole or in part by John Candy, Keith Hernandez, Madeline Kahn, Danny DeVito, Wynton Marsalis, Gladys Knight, Barbara Walters and Paul Simon, amongst others. The title for this week’s blog was inspired by the 2015 article “C is for Cookie – That’s Good Enough for Ohio” (www.alston.com/files/docs/Calhoun-Hedstrom-C-is-for-Cookie-Article.pdf) which references another well know song from the series.
 Quill Corp. v. North Dakota, 504 U.S. 298 (1992).