MA Committee on Revenue endorses bill to join Streamlined

August 19, 2011

According to a State House News Service article in the Boston Herald, Massachusett’s Committee on Revenue last week endorsed a state bill that would allow Massachusetts join the Streamlined Sales and Use Tax Agreement (SSUTA).

Although the article refers to the bill as H 3672, our research shows that H 3672 is a bill on accessible housing for people with disabilities. It’s our guess that this is simply a typo in the article and that the actual bill the Committee on Revenue approved is H 3673, a revision of H 1695 that the committee “reported favorably” on August 15 and that aims to “promote sales tax fairness for Main Street retailers.” H 3673 would “authorize the commissioner to petition the Streamlined Sales Tax Governing Board to allow the commonwealth to become an associate or full member of the Streamlined Sales Tax Governing Board.”

We strongly support the commonwealth’s efforts to simplify and standardize their sales and use tax laws by joining SSUTA—we even went up to Boston in April to testify in support of the bill. Our testimony read, in part:

This bill is very important to alleviate the imbalance being felt by local retailers across the state, as increasingly they are seeing consumers browse their stores and ask clerks questions, only to go home and buy from online retailers to save on sales tax. Over time, the vanishing sales tax revenue has hurt not only the state, which is losing the sales tax proceeds, and local retailers, who are losing business, but even Massachusetts residents themselves, as the loss of sales tax revenue has resulted in dramatic cuts to local services, including police protection, fire protection, and schools.

In addition, by adopting this legislation Massachusetts would send a clear message to Washington, D.C., that it is time for federal action to correct the growing inequity between local retailers that have to collect sales tax and online retailers that do not. It’s time to shift the burden of calculating, reporting, and remitting tax on online purchases from individual consumers to online retailers. It’s time for local communities to start receiving the sales tax revenue they are due, so they can stop cutting services because of lack of funds. It’s time to recognize that collecting sales tax on online purchases is fair, easy, and the right thing to do. It’s time to pass the Main Street Fairness Act.

True, joining SSUTA is just a first step toward resolving the unfair practice of requiring local small businesses to collect sales tax while not requiring the same of larger, and frequently more technologically sophisticated, out-of-state retailers. It’s only a first step, but it’s a crucial step. Momentum on this issue is building, and Massachusetts now has the opportunity to stand united with twenty-four other states and say that the problem of uncollected sales tax, which affects nearly every state in the nation, needs a national solution, and that national solution has been provided by SSUTA.

If Massachusetts does become the latest state to join the Streamlined Sales and Use Tax Agreement, it would simplify Massachusetts’ sales tax regulations, making it easier for businesses (particularly those outside Massachusetts) to collect Massachusetts sales tax.

We applaud the Committee on Revenue for approving this sensible legislation, and we hope to see Joint Committee on Rules show the same wisdom. We look forward to the Bay State  becoming the 25th member of the Streamlined Sales and Use Tax Agreement.


Massachusetts considers affiliate nexus bills

May 31, 2011

Massachusetts is considering two bills, one from the House and one from the Senate, that would require online retailers with Massachusetts affiliates to collect sales tax.

According to this article in the Cape Cod Times, a University of Tennessee study puts Massachusetts’ annual sales tax losses at $11.4 billion by 2012. The same article states that the senator sponsoring the bill, Senator Steven A. Tolman, hopes to recover that money in order to fund services that have been cut due to the recession:

Tolman said the tax money is needed to invest in state programs that had to be cut in the recession.

“In these times of tight state budgets and the reduction or elimination of many state-funded programs, Massachusetts can no longer afford to subsidize Internet and catalogue retailers by not collecting sales tax on purchases made by residents of Massachusetts,” Tolman wrote in an email.

Tolman said what essentially are tax-free sales gives online vendors an unfair advantage over bricks-and-mortar stores.

“The current law penalizes Massachusetts’ main street retailers and gives those without a physical presence in Massachusetts a 6.25 percent head start,” he said.

Michael Mazerov, an official from the Center on Budget and Policy Priorities, also commented on states’ need for sales tax revenue:

“State and local governments are losing billions of dollars a year in revenue that they need to provide education, health care, police protection and a whole other range of services,” he said.

Mazerov said the government is already entitled to this tax money; its absence has added to state budget woes.

“Particularly now, with the downturn of a depressed economy, local governments are losing lots of revenue that they’re legally entitled to receive,” he said. “These are not new taxes. We are talking about collecting sales tax on things that are taxable if you buy it in the store.”

Both Tolman and Mazerov make good points, and we agree that online retailers should collect sales tax, just as local retailers do. However, we don’t believe that bills like these, which target online retailers that use affiliate marketers, are the best solution.

When other states have passed these kinds of affiliate nexus laws, online retailers have responded by simply ending their affiliate relationships in the state. These laws end up hurting small businesses in the state that rely on affiliate marketing income and do not bring in any additional sales tax revenue.

A better solution is the Streamlined Sales and Use Tax Agreement (SSUTA) and the federal Main Street Fairness Act. States that join SSUTA implement its sales tax guidelines to make collecting sales tax for more than one state easy for retailers. The Main Street Fairness Act would, in turn, allow SSUTA member states to require online retailers to collect sales tax.

It makes sense: Only those states that have made it easy for online retailers to collect sales tax would be allowed to require online retailers to do so, and retailers with affiliates wouldn’t be singled out.

Everyone would play by the same rules. And isn’t that the best solution for everyone?


Op-ed in Boston Globe glosses over the issues

April 18, 2011
Boston Globe

Boston Globe

Yesterday’s op-ed in the Boston Globe is severely flawed and glosses over the essential facts of the sales tax collection issue.

Jeff Jacoby’s piece, “There’s no fairness in taxing e-sales”, starts off by stating that the legislation expected to be introduced by Senator Durbin “would subject millions of American consumers to ‘excessive’ fees they have long been sheltered from:  sales taxes on their online purchases.”  Sales taxes on online purchases are not excessive fees that consumers have been sheltered from—this is a tax that consumers have been legally obligated to pay to the state of Massachusetts since 1967.

The op-ed goes on to state that Durbin’s bill will undo the longstanding rule of “substantial nexus” that “comes from the Supreme Court, which has confirmed the no-nexus-no-tax rules in a a line of cases stretching back more than 40 years.” The op-ed fails to elaborate on those Supreme Court rulings—Bellas Hess (1967) and Quill (1992)—which stated that a remote retailer (then mail-order catalogs) should be obligated to collect sales tax just as a local retailer must but also conceded that unlike a local retailer, a remote retailer would be “entangled in a virtual welter of administrative and record keeping burdens.”  The 1967 ruling ultimately placed the issue before Congress:  “The underlying issue is not only one that Congress may be better qualified to resolve, but also one that Congress has the ultimate power to resolve.  No matter how we evaluate the burdens that use taxes impose on interstate commerce, Congress remains free to disagree with our conclusions.”

The op-ed points out that Main Street businesses have some competitive advantages: the ability to attract customers with window displays, the ability to play up ties to the community, and the ability to give consumers a way to “try on items before buying them.” That is true, but from the Main Street retailers’ point of view it looks like this: Shoppers come into their stores, browse and ask the clerks questions, and then say “Thanks, I’m going to go order it online.”  This seems to be especially true of high-end products where the sales tax can amount to over a hundred dollars, like electronics and cameras.

The op-ed also makes the argument that “taxes paid should bear some relations to services received, and merchants with no ‘substantial nexus’ to a state receive no services from it. They don’t use its firefighters or sewers, don’t send their kids to its schools, and don’t expect it to plow their streets after a blizzard.” But the location of the store is irrelevant. Sales tax is paid by the consumer, not the retailer, and it’s destination-based—it goes to the state and community where the consumer is located. Massachusetts consumers DO use the firefighters, DO use the sewers, and DO expect their local municipality to plow their streets.

We realize that an op-ed piece is the opinion of the writer. However, we feel this particular op-ed overlooks the fundamentals of the debate. This debate is not about whether you should be taxed, why you should be taxed, or at what rate you should be taxed; that debate takes place at every election when you choose your local representatives and weigh in on various ballot initiatives. The question is:  What is the most efficient way to collect sales tax?

The Streamlined Sales and Use Tax Agreement, which began in 2000, is the result of the cooperative efforts of 44 states and the business community to simplify common definitions, standardize sales tax data, and standardize reporting procedures. The federal legislation that is being proposed by Senator Durbin would enable states that have already revised their sales tax laws to comply with Streamlined to require remote retailers to collect sales tax. Twenty-four states have already made the necessary revisions to theirs sales tax laws and more are considering doing so (including Massachusetts). It is better that Congress address this issue so that all businesses collect the correct tax. Until then, more and more states are going to be attempting on their own to collect these taxes, which will increase complexity.

Massachusetts considers joining SSUTA, enacting affiliate nexus legislation

April 5, 2011
The Patriot Ledger

The Patriot Ledger: Massachusetts considers joining SSUTA, enacting affiliate nexus legislation

Massachusetts has become the latest state to introduce legislation that would allow it to join the Streamlined Sales and Use Tax Agreement (SSUTA), according to this article in the Patriot Ledger. At the same time, it’s also become the latest state to consider enacting affiliate nexus legislation (aka, the “Amazon tax”).

While we certainly understand why Massachusetts would enact affiliate nexus legislation—like most states, Massachusetts is experiencing a severe budget crisis, and in 2010 alone, $99.3 million in sales tax on e-commerce sales went uncollected—we believe that joining SSUTA is a better strategy.

We’re concerned that affiliate nexus legislation hurts small businesses that rely on the affiliate marketing income they receive from Amazon and other large online retailers. Rather than collect sales tax in states with affiliate nexus laws, Amazon and others have simply dropped their affiliate relationships in those states.

The article includes several quotes from Jonathan Johnson, president of Overstock.com, that confirm our fears:

Jonathan Johnson says Overstock has terminated its affiliate relationships in every state that has passed one of these bills because the company doesn’t want to be put in the position of being a tax collector. He says the bills do little to increase revenue for the states: Overstock, Amazon and others simply sever the ties with the local marketers and continue to avoid the sales tax.

Johnson says many of these affiliates pull up stakes and move to states that don’t have these new sales tax laws. As long as a few states don’t adopt the change, there will be tax havens for these marketers— and the online retailers that pay their commissions. He says there are at least 100 marketers in Massachusetts who would be affected if the legislature here passes RAM’s legislation. All of them, Johnson promises, would be cut off from Overstock if the bill becomes law and they stay here.

With Amazon and New York still embroiled in a lawsuit over the constitutionality of affiliate nexus laws and Amazon closing a warehouse in Texas rather than pay the sales taxes Texas says it owes, it’s become clear that a national solution is necessary. Federal legislation, in the form of the Main Street Fairness Act, would require all online retailers to collect sales tax, not just those with affiliate marketing relationships—something Amazon has said it would support.

The article also includes figures we haven’t seen before that are quite revealing:

Each year, the stakes in this battle get higher for the brick-and-mortar companies. Wells Fargo Securities estimated in a February report about Amazon that online commerce represents 8 percent of all U.S. retail sales, up from 2 percent a decade ago.
That report clarified Amazon’s pricing power: Wells Fargo found that prices at Amazon, with the sales tax benefit, were 13 percent below Wal-Mart’s, 21 percent below Target’s and 23 percent below the prices at specialty retailers. The differential further widens once Amazon’s free shipping program is added to the equation. (emphasis added)
With prices like that and free shipping on most orders over $25, it’s no wonder Amazon is so popular. Clearly Amazon has a hugely successful business model, and it—as well as other large online-only retailers—no longer needs the price advantage that comes with not collecting sales tax.
Let’s level the playing field for local retailers. If they have to collect sales tax, so should online retailers.

MA Senator Richard Moore: Any extension of tax cuts should include the provisions of the “Main Street Fairness Act

November 23, 2010

Politico.com published a blog post today by Massachusetts State Senator Richard Moore which gave a ringing endorsement for the Main Street Fairness Act, and which advocates for including provisions of the Act in any extension of tax cuts (generally referring to the extension of the so-called Bush Tax Cuts).
The post closes with the following sobering assessment: The national recession is still threatening America at the state and local level. Without the benefits of H.R. 5660, states will be forced to lay off more teachers, public safety personnel and others in the next two or three years and reduce state and local purchases of private sector services. The resulting increase in unemployment and decrease in state and local government purchases of goods and service could harm the recovery and even lead to a “double-dip” recession.”