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Massachusetts: Online Sales Mean Millions in Lost Sales Tax


The Massachusetts Main Street Fairness Coalition has released an economic study suggesting that the state loses millions in sales tax revenue due to current online sales tax laws.

The study was prepared by Cape Ann Economics and is specific to Massachusetts. It examined "$6 billion dollars in online purchases made by Massachusetts consumers in 2011" and concluded that, had internet and other remote sellers been required to collect sales tax in 2011, "sales by Massachusetts bricks and mortar stores would have increased almost $280 million."

Snapshot

Using an "eight-step calculation that considers market behaviors that are specific to Massachusetts," the authors of the study claim that lost sales tax revenue from 2011 could have generated 1,970 new jobs "through the combined impact of direct hiring in the retail sector and the ripple effect of the new spending across the state economy." The study predicts that "[b]y 2020, ecommerce in the state will grow to $205 billion, out of total sales of $923 billion." Furthermore, "[s]ales tax that hypothetically could be collected if the tax disparity were eliminated" could reach $878 million by 2020.

In theory, Massachusetts residents pay the state Department of Revenue a consumer use tax on remote purchases, such as a book bought at Amazon.com. In reality, however, few people opt to do so. There is little enforcement of the use tax.

The Massachusetts Taxpayers Foundation supports collecting sales tax on remote purchases. Michael J. Widmer, president of the foundation, said of the study:  "This … shows the consequences, in terms of lost jobs and revenues, of a policy that is unfair and badly out of date…. As online sales continue to grow, the costs to the Commonwealth will only get greater and greater over time."

However, not everyone thinks it's a good idea to force Amazon and other online businesses to pay sales tax. Some small business owners worry that they will "have a far greater administrative burden than local physical stores that only have one state's tax code to worry about." And at least one man thinks people will always find a way to avoid paying sales tax. Leonard Griffith, of Belchertown, MA, has said of taxing online retailers:

 "It's just going to hurt the people who deliver packages and all the other jobs that are still created from shopping online. It's just going to make people go to New Hampshire."

The Live Free or Die state, just north of Massachusetts, does not have a general sales tax.

Governor Deval Patrick (D) and his administration have "yet to reach a deal with Amazon.com that would require the nation's largest online retailer to collect state sales tax... " in Massachusetts. However, the governor's office announced on November 15, 2012, that "talks are advancing" and "it won't be long before they announce if a deal has been reached."

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.