Massachusetts will not enforce a proposal to tax certain internet transactions after two associations sued the state earlier this month for allegedly violating federal law.

Massachusetts was set to enforce a directive from the state revenue director to collect sales taxes from internet purchases made though out-of-state retailers, Forbes reported. States can collect taxes if a retailer has a physical presence in their borders, but states currently have few legal avenues to tax transactions if a business is in another state.

NetChoice, an association representing online retailers, and the American Catalog Mail Association sued Massachusetts, claiming the directive was both unconstitutional and a violation of the federal Internet Tax Freedom Act, which prevents states from taxing internet services.

The Massachusetts Department of Revenue announced Wednesday it was withdrawing the directive, which was set to take effect Saturday. The agency said it would instead propose regulations similar to the order in the near future.

While the state plans to ultimately press forward with collecting internet taxes, NetChoice Executive Director Steve DelBianco viewed the decision to withdraw the directive as a victory.

"After hearing our arguments in court yesterday, the (agency) realized they were in for a prolonged, and ultimately losing legal battle," he said in a statement to Forbes. "Today's actions will greatly benefit Massachusetts consumers as well as Bay State small businesses looking to sell across the country." http://bit.ly/2to1D1m

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