BOSTON — The Supreme Judicial Court is set to take up a case that could determine whether certain online software companies are required to pay the state's 6.25% sales tax.

In a lawsuit, Florida-based Citrix Systems Inc. argues that its online products — GoToAssist, GoToMeeting and GoToMyPC — aren't considered "tangible personal property" under state law and shouldn't be subject to the sales levy. The suit, which goes before the state's highest court Oct. 4, asks justices to reverse a 2018 decision by the state's Appellate Tax Board.

Last year, the state Department of Revenue sent the company an updated tax bill after an audit that determined it owed additional taxes on the sales of the online products from April 30, 2007, to June 30, 2009, and Oct. 31, 2009, to Dec. 31, 2011, according to filings. Details of the company's tax bill weren't disclosed.

Citrix appealed DOR's directive to the state's Appellate Tax Board, which ruled in November 2018 that the company's sales of the online products were subject to the sales tax.

The company argues the board erred in its decision and that will have implications for other computer-related businesses, including Google and rail-hailing services such as Uber and Lyft.

"Under the Board’s erroneous approach — in which the use of software is considered to be not only a component of these online services, but the true object of them — all these companies would face being reclassified as vendors of tangible personal property," the company's lawyers wrote in court filings.

Neither side would comment on the litigation.

Citrix employs about 8,200 employees worldwide and generated more than $2.97 billion in revenue in 2018, according to the company’s latest annual report.

The lawsuit is the latest court battle over the state's ongoing push to expand the collection of online sale taxes.

In 2017, Massachusetts issued a directive ordering out-of-state companies that meet certain criteria — 100 or more online sales involving Bay State consumers, or that are worth at least $500,000 per year — to collect the sales tax. The state has since lowered the threshold to levy the tax on retailers who report $100,000 or more in annual online sales.

Despite a law that limited states to collecting taxes from retailers with a physical presence within their borders, Massachusetts has been relying on the argument that "cookies" stored on a computer or smart phone by websites effectively created that physical presence.

A recent U.S. Supreme Court ruling made the physical presence requirement moot, and suggested a $100,000 threshold for collections.

Meanwhile, the state is still embroiled in a legal challenge by a Virginia-based internet retailer over efforts to collect online sales taxes. Crutchfield Corp., which sells electronics, sued last year claiming the state’s policy violates interstate commerce laws.

The company’s attorneys have said in court filings the rule "imposes an obligation on certain internet vendors to collect and remit sales or use taxes on electronic commerce" that are not applied to other businesses.

In Massachusetts, revenue officials say about $200 million a year is lost to online sales — a figure that has swelled as consumers do more business in cyberspace.

Retailers near the border with New Hampshire — one of five states that don’t charge sales taxes — face a double blow from tax-free competitors.

Massachusetts has a so-called "use tax" that requires residents to pay sales taxes on purchases made out of state or online.

The state asks taxpayers to self-report online spending, but analysts say enforcement is almost nonexistent.

Christian M. Wade covers the Massachusetts Statehouse for North of Boston Media Group’s newspapers and websites. Email him at cwade@cnhi.com.

 

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