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Massachusetts: How Far Will Consumers Drive to Avoid Sales Tax?

  • Dec 17, 2012 | Gail Cole

How far would you drive to avoid paying sales tax?

It's a fair question. Five states in the nation do not have a general state sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. For decades, residents of neighboring states have had an option: shop in their home state and pay sales tax, or drive across the border and shop tax free.

Online retail giant Amazon.com currently collects sales tax from a handful of states, including Oregon's neighbors California and Washington. It does not currently collect sales tax on purchases made in Vermont, Maine, or Massachusetts -- the three states that border tax-free New Hampshire.

Full disclosure: I grew up in Southern New Hampshire. During my youth, Massachusetts license plates were a familiar site in the Mall of New Hampshire parking lot; we used to grumble about how they took all the parking spaces. Since that time, internet shopping has enabled Massachusetts shoppers to shop tax free without the drive.

That's going to change next year. Earlier this month, it was announced that Amazon would begin collecting sales tax in Massachusetts in November, 2013. At that point, Massachusetts residents who for years have shopped online without paying sales or use tax* will have to add 6.25% (Massachusetts sales tax) to the total purchase price. Is 6.25% enough to make Massachusetts residents head north to New Hampshire?

Some officials in Southern New Hampshire think it is. Nancy Kyle, executive director of the NH Retail Merchants Association, has said that Amazon collecting sales tax in Massachusetts could present "… an opportunity for New Hampshire retailers." Many Massachusetts retailers think so, too. According to a study by Cape Ann Economics for the Massachusetts Main Street Fairness Coalition:

"If all Internet and other remote vendors were required to collect the sales tax, just over ten percent of currently untaxed ecommerce sales would shift to New Hampshire in order to continue to avoid the tax. … The 10.1 percent comes from our examination of how much retail sales have already moved from Massachusetts to New Hampshire because of the tax differential."

Indeed, according to NHLiving.com, "Thousands of people visit New Hampshire every day to go tax-free shopping." Well, that's how it was when I was growing up in New Hampshire, back before there was an internet.

*People who live in states with a sales tax are supposed to pay consumer use tax on tax-free purchases made out-of-state or remotely via the internet, phone, catalog. In reality, few do.

photo credit: FaceMePLS via photopin cc

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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.