Amazon, the world’s largest online merchant, said Tuesday that it has agreed to start collecting the state’s 6.25 percent sales tax in Massachusetts next November, a move that will cost consumers but generate tens of millions of dollars for Beacon Hill.
The deal came out of six months of negotiations between state officials and Amazon.com Inc. Online merchants are supposed to collect sales taxes if they have a physical presence in a state, and Amazon now has a Cambridge office and a North Reading technology firm.
On Tuesday, consumers said they were disappointed to learn they will not be able to take advantage of tax-free shopping on Amazon.com after Nov. 1, 2013 — just in time for the next holiday season. Some said they would look for ways to buy online without being taxed, while others seemed resigned to the added costs.
“This will increase the possibility I buy a new book in a bookstore rather than on Amazon,” said Candy Zito-Wolf, an IT manager from Watertown.
Amazon.com said it expects to create hundreds of high-tech jobs in Massachusetts in coming years, but offered no details. State officials are engaged in ongoing discussions with Amazon about opening a distribution center, which could generate significantly more jobs.
‘This will increase the possibility I buy a new book in a bookstore rather than on Amazon.’
A Massachusetts distribution center could allow Amazon to offer same-day delivery in New England, something it has been rolling out in other parts of the country, according to retail analysts.
Jay Gonzalez, Massachusetts’ secretary of administration and finance, would not comment directly on any economic incentives the Seattle-based retailer might be offered in return for expanding its operations. The company recently struck deals in other states, including New Jersey, to collect sales taxes in exchange for receiving tax breaks to help finance construction for warehouses and other facilities.
“We don’t have specifics to talk about potential additional investment [Amazon] may make or what that might look like or what the state might be willing to do or not to do,” Gonzalez said. “But we’re very happy about reaching this agreement with Amazon. It levels the playing field for brick-and-mortar retailers, and it will generate tens of millions of dollars in revenue on an annual basis.”
The arrangement was reached as Massachusetts faces weaker than expected tax revenues, with October collections coming in $162 million short of estimates and $48 million below the October 2011 total.
While praising the agreement with Massachusetts, Amazon also called on state officials to press for a national Internet sales-tax law that would force all online merchants and other remote sellers to collect and remit sales taxes.
By agreeing to collect more money from Massachusetts customers, Amazon could become less competitive with tax-free online rivals such as Overstock and eBay. Both oppose any federal effort to require retailers to collect sales taxes.
“We look forward to creating hundreds of high-tech jobs in Massachusetts and continuing to work with Governor Patrick, state leaders, retailers, and Congress to pass federal legislation permitting interstate sales tax collection,” said Paul Misener, Amazon’s vice president of global public policy.
For consumers like David Connery, a 60-year-old retiree who lives in Clinton, Tuesday’s news was not welcome.
“I don’t want to pay any extra taxes. It’s probably necessary for the state, but I think they tax too much,” said Connery, noting he did much of his Christmas shopping on the website this year. “I think that’s one of the advantages of going onto the Internet and shopping, is not having to pay the sales tax.”
Zito-Wolf, the IT manager from Watertown, said she believes the agreement is reasonable — it won’t discourage her from using Amazon. But Zito-Wolf and other consumers also said they will be more inclined to buy from local shops when the tax advantage disappears.
Currently, Massachusetts residents who buy products from online retailers that do not collect sales taxes are supposed to pay the state Department of Revenue on their own. Few do, however, and there is little enforcement.
Online merchants have been protected by a 1992 US Supreme Court ruling that said they had to collect sales tax only in states where they have a physical presence. But Internet shopping has exploded in popularity since then, and the issue of how to tax it has received more attention in recent years. According to the National Conference of State Legislatures, states missed out on an estimated $8.6 billion in 2010 by failing to collect sales taxes for online and catalog purchases.
The Massachusetts Main Street Fairness Coalition, an organization made up of retailers, local elected officials, labor unions, and trade and business associations, recently released a study showing the online sales tax loophole annually costs Massachusetts $280 million in sales to local businesses and nearly 2,000 jobs. The coalition, which has been pressuring the Patrick administration to force Amazon to collect taxes, now plans to focus on getting Congress to pass legislation governing online taxing.
“It’s a long time coming,” Jon Hurst, president of the Retailers Association of Massachusetts, said of the Amazon deal with the state. “It’s a welcome and important win for main street Massachusetts.”