In a sweeping new state budget plan, Massachusetts Gov. Charlie Baker introduced a measure that would require online marketplaces, such as Amazon and eBay, to collect sales taxes on behalf of third-party vendors which sell products using their platforms. There are currently nine other states that have passed similar laws.
The new proposal is estimated to bring in almost $42 million in revenue and follows previous tax measures meant to bring fairness to the tax system. Smaller stores with a physical presence in Massachusetts previously complained that some online retailers had an advantage since they didn’t pay the 6.25 percent sales tax.
The increase in tax revenue is less about needing more revenue and more about increasing fairness. For context, the new state budget totals $42.7 billion for next year’s fiscal year. About half of the sales on Amazon’s site are from small and medium-sized third-party businesses. Amazon didn’t collect taxes on the sales from these vendors.
Last June, the U.S. Supreme Court ruled that states can require online retailers to collect and remit state sales taxes, whether or not they have a physical presence in the state. Beforehand, Baker placed a “cookie tax” by treating software and tracking codes on online devices as necessary requirements to collect sales tax.
Currently, the Department of Revenue uses the cookie tax on online companies $500,000 in minimum annual sales and at least 100 transactions. With Baker’s bill, Amazon, eBay, Etsy and other big marketplaces would collect taxes for the small companies that use their platforms for sales.
The Massachusetts Department of Revenue indicated to the Retailers Association of Massachusetts that it might reduce the sales requirement minimum to $100,000 at the lowest and remove the threshold for the number of sales.
Businesses — whether small or large — should not be exempt from a tax burden. While the new proposal would increase taxes on consumers, it would level out the playing field for mom-and-pop shops with locations in Massachusetts. This proposal fixes a tax loophole that never should have existed.
The measure is not unfair to third-party sellers who have locations out of state. If you are purchasing a good in Boston from a store located in New Hampshire, Massachusetts deserves the sales tax revenue. Otherwise, this creates a system where out-of-state businesses are favored compared to the shop around the corner.
Even with the advent of e-commerce, people will still be inclined to travel to a store to buy a product. There is an element of joy when you find something while strolling down the aisles. But these small stores are under threat, and creating fairness in the tax system doesn’t give them an advantage. It merely gives them a fair chance to compete.
