With Amazon Deal In Hand, State Should Weigh Sales-Tax Cut
Last month's agreement between Amazon and the Patrick administration that the online retailer will begin collecting Massachusetts sales tax later this year is welcoming news to the commonwealth's retail industry. Yet it's also a welcome opportunity for the Bay State to ratchet back the 6.25-percent sales tax to a saner level, much closer to where it was in 2009 – 5 percent. Our economy is no longer limping along like it was then, and the sharp sales tax rise was never meant as a permanent solution.
The agreement with Amazon won't take effect until November. That gives legislators enough time to examine a sales tax rollback, especially if the state economy continues to grow and yields more than enough revenue to overcome the estimated $225 million in spending cuts ordered last month in the face of a projected revenue shortfall.
In a Viewpoint column he wrote in October for the WBJ, State Treasurer Steven Grossman said Massachusetts loses about $335 million a year in sales tax revenue to online or other remote sales, such as telephone orders and catalog shopping. The deal with Amazon will make a small dent in that, probably less than 10 percent, based on administration estimates. But it's a victory for fairness for the state's retail industry and the roughly 350,000 residents it employs, and it comes at an opportune time, with consumer confidence rising and spending beginning to flow again.
Without further large deficits showing up at our door, Patrick and state lawmakers should immediately look to cut the sales tax levy to less than 6 percent. That would be a welcome lift to consumers, especially those with modest incomes, since the tax falls disproportionately on those who earn the least. It would also be a boost for retailers across northern Massachusetts, who must contend with Vermont's 6-percent levy and, of course, sales tax-free New Hampshire.
The issue of taxing online retail sales has been a hot topic in Massachusetts, yet it's truly a national issue. According to the National Conference of State Legislatures, states were expected to lose an estimated $23.3 billion in 2012 because of a 15-year-old nationwide tax moratorium on web-based purchases that's due to expire in November 2014.
Massachusetts' sales tax rate is within the 15 highest among the 50 states. But unlike the Bay State, three of the top 15 don't have an income tax. While the issue of state taxation is more complicated than a mere ranking of rates, the long-standing perception of Massachusetts being a “high tax” state is still one that is widely held. In our recent economic forecast survey, for example, nearly 25 percent of respondents cited high taxes as the biggest impediment to doing business in the state.
To chip away at that perception, boost the retail economy, and to take advantage of the added revenue the Amazon deal will bring, state officials should make a sales-tax cut a top priority in 2013.
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