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Innovation Economy

E-tax levels the field

Excerpts from the Innovation Economy blog.

In Boston, we have a long history of rebelling against taxation. So I guess I should not have been surprised last month after I wrote about Amazon.com’s plans to set up an office in Cambridge.

Most of the e-mail I received was not about how to get a job with the pioneering e-tailer, but about sales taxes. Namely, whether and when Massachusetts residents might have to start forking over the state’s 6.25 percent tax when they buy stuff from Amazon, since the company would have a physical location here, which could force them to start collecting the tax.

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The particulars of the Amazon situation are not clear. The office has not opened, and the state Department of Revenue has not shared its position on whether Amazon will need to start adding the tax to the tally.

But the bottom line is that state sales taxes could be added to all e-commerce transactions soon, for any company that chalks up more than $500,000 in out-of-state sales a year.

A bipartisan bill introduced in the US Senate in November, the Marketplace Fairness Act, calls for collecting an estimated $23 billion a year in state and local taxes, money that today does not get collected. The bill would leave it up to each state whether to collect the taxes, while attempting to simplify the process for e-tailers.

No one likes paying more taxes, but here’s why I’m in favor of adding the sales tax to online transactions.

First, this is not a new tax. It is a tax we were supposed to be paying all along. Whenever you buy something from a website or catalog, you’re supposed to pay a 6.25 percent “use tax’’ to the state.

How many of us do that? About 1.6 percent of Massachusetts tax filers, according to the state. Who are those people? I suspect they must have plans to run for office.

Second, in the early days of e-commerce, it seemed unfair to saddle small start-ups with the burden of figuring out the proper tax rate on each purchase, collecting it, and handing it over to the right agency. Plus, in the late 1990s, we wanted to encourage the creation of e-commerce businesses, not over-regulate them. Today, it would take a millisecond or two for a Web store to take your ZIP code and consult a database of tax rates - the same way it calculates shipping costs - and add the right percentage to your purchase.

And it isn’t the online merchants who feel like fragile seedlings in need of protection any more. For the 2011 fiscal year, analysts predict that Amazon, the biggest online retailer, will have raked in about $48 billion in revenue, up about 42 percent from 2010. In 2011, Borders, a once-successful bookstore chain that had been in business for 40 years, closed all its stores. The last year it turned a profit? 2006.

Third, states need the money.

In Massachusetts last year, legislators had to deal with a budget shortfall of $1.9 billion. That forced them to cut funding for higher education and healthcare for the poor and elderly, among other things. Collecting state sales tax on Internet purchases would not have erased the need for cuts, but it would have provided about $268 million in additional revenue, according to the National Conference of State Legislatures.

Finally, continuing to give e-tailers a free pass will have a big impact on our Main Streets and malls. Those old-school toy stores, clothing boutiques, and furniture showrooms pay rent and support local jobs.

Massachusetts has been the birthplace of great offline retailers like TJX Cos., great online retailers like Wayfair, and great hybrids like Framingham-based Staples, which operates more than 2,000 stores and is the number two online merchant, behind Amazon.

I think our position ought to be that we want to create a level playing field where small, independent retailers can continue to be part of the fabric of their towns, where e-commerce start-ups can grow, and where new retail concepts can develop into the next Staples.

And that means all of those players, on the Net or on Newbury Street, ought to be collecting the appropriate taxes from their customers.

Visit www.boston.com/innovation for the full Innovation Economy blog, updated daily.

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