The dirty little secret of sales tax collection in this state is that large-scale businesses get to hold on to that revenue long enough to make quite a nice side-profit collecting interest on what they call the “float” — akin to what bookies call the “vigorish.”
The Baker administration, as part of its fiscal 2021 budget, has a two-step plan for getting that money — taxpayers’ money, after all ― into state coffers more rapidly. It makes all the sense in the world. But make no mistake, there will be the inevitable pushback, especially from big-box stores, which like things just as they are.
It’s not the first time the administration has made a push for more timely sales tax collections, but this year the revenue numbers it has attached to its proposal are impressive — hopefully too impressive for lawmakers to ignore.
Secretary of Administration and Finance Mike Heffernan called the current process “antiquated,” adding it allows vendors to hold on to those sales tax proceeds for as long as 50 days after they’ve been paid by consumers. Under Phase 1 of the plan, businesses with $100,000 or more in sales tax receipts or room occupancy or meals tax receipts would have to remit them to the state on a faster timeline. Proceeds for the first three weeks of the month would have to be remitted in that same month. The final week’s receipts would be collected in the following month.
Heffernan estimated the policy would apply to only 10 percent of the state’s businesses, but that those businesses generate 80 percent of the state’s sale tax receipts. Capturing that revenue earlier would provide some $317 million this year alone. The Baker budget allocates $40 million of that additional revenue for the MBTA.
Last year Senate Ways and Means budgeteers dismissed the idea as “one-time revenue” and took it off the table. In a year when the state ended with a $1.1 billion surplus, that wasn’t difficult to do. But this year, with both branches looking for sources of revenue to finance the state’s many transportation needs, the case is far more compelling.
That brings us to the Baker budget’s proposed Phase 2 — a system for retailers and credit card processors to capture sales taxes at the moment of purchase and remit them daily to the state. That provision, which would require changes in the way credit card processors (as opposed to individual vendors) deal with remittances, wouldn’t be implemented until fiscal 2023.
The change, which applies only to credit card purchases, would require processors to split those charges on a daily basis — sending the state its share daily.
“It will add revenue,” Heffernan said, “but I haven’t put a number on it.”
Others have. A 2019 report by Performance Economics in Somerville done for STAC Media, a private firm promoting the idea, put the annual figure at more than $700 million. It also noted that it would help prevent tax cheating — which national studies estimate ranges from 5 percent to 16 percent — while guarding against the state losing out entirely when a business goes bankrupt.
And the economists who did that study also noted that the daily data compiled would give the state a kind of early warning system on any potential economic slowdown.
Last year lawmakers gave the whole issue a good leaving alone. They couldn’t even agree on language to provide civil penalties for the sale or use of tax “zappers” — devices used to falsify the actual electronic records of tax receipts.
There is a good deal of wailing and gnashing of teeth this year on Beacon Hill about the need for new revenue. Collecting what is due to the state in a timely fashion is a good place to start.
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