Massachusetts governor would tax online sales, Airbnb rentals
- Sales Tax News
- Feb 7, 2017 | Gail Cole
Massachusetts Governor Charlie Baker (R) plans to modernize sales tax in the next fiscal year. His FY 2018 Budget proposal includes provisions for closing the loophole that exempts Airbnb rentals from occupancy tax, and requiring third-party processors such as credit card companies to remit sales tax to the Commonwealth daily. Not in the budget proposal, but reportedly part of his overarching plan, is taxing online sales.
Direct payment of third-party payment processors
Section 16B of the budget proposal requires vendors using third-party payment processors to “separately identify tax amounts charged … and non-tax amounts for which payment is sought.” Third-party payment processors must then “directly pay the identified tax portion … to the commissioner on a daily basis, at substantially the same time that any non-tax balance is paid to the vendor or operator.” Finally, third-party payment processors must “report total payments made to the commissioner on a monthly return,” as well as report to vendors (monthly) the total tax paid to the commissioner.
Minimizing the time between sales tax collection and sales tax remittance can maximize revenue for the state.
Room occupancy tax changes
The governor is also seeking to “level the playing field in the accommodations industry” by:
- Obligating “those individuals or businesses who are … running hotel-like businesses to collect and remit the room occupancy tax”
- Authorizing an intermediary (such as Airbnb or VRBO) “to collect and remit the occupancy tax on behalf of an operator under an agreement with the Commissioner of Revenue”
- Authorizing intermediaries (per an agreement with the commissioner) serving the transient accommodation market to collect occupancy tax “on behalf of all property owners the intermediary may represent”
Online sales tax
According to Commonwealth Magazine, Gov. Baker estimates he can collect an additional $30 million in sales tax revenue during the next fiscal year if major online retailers who do business in Massachusetts (but lack a physical presence in the state) collect tax on their sales into Massachusetts.
These transactions aren’t exempt — consumers are supposed to pay the equivalent use tax to the state if sales tax wasn’t collected at the point of sale. However, use tax compliance is extremely low, and enforcement is difficult. Having remote vendors collect and remit tax on these sales would facilitate collections of a tax that is already due.
Ecommerce giants Amazon and Walmart, no slouch in the world of online sales, already collect sales and use tax in Massachusetts because of their physical presence in the state. But many other retailers that sell primarily over the internet aren’t required to collect and remit tax in Massachusetts because they don’t have nexus — a tax obligation triggered by a substantial connection with the state (Masslive).
Nexus has historically been based on a substantial physical connection with a state, such as an office, warehouse, or the regular presence of traveling salespeople or representatives. Increasingly, however, states are broadening their definitions of nexus to include ties to in-state affiliates that generate a certain amount of business (affiliate nexus), or referrals from links on in-state websites that generate a certain amount of business for the out-of-state seller (click-through nexus).
Economic nexus is another way states strive to capture more revenue from remote sales. Alabama, Oklahoma, and South Dakota have all instituted economic nexus policies that impose a collection duty on remote retailers making a certain number of transactions or earning a certain amount of revenue from sales in the state. Read more about economic nexus.
See the FY 2018 Budget Proposal for additional information.
With the start of a new year underway, many states are looking to increase sales and use tax revenue by implementing new policies. Keeping abreast of these policies helps businesses plan for future changes.