Punch me in the gut while patting me on the head.
It’s a quirky metaphor — especially for a topic as dry as the timing of sales tax collections.
But Jon Hurst, president of the Retailers Association of Massachusetts, likes to say that’s how it feels to have small-business aid tied to accelerating the pace with which merchants remit sales taxes to the state.
Hurst finds himself again battling over plans to speed up sales tax remittance. In previous years, when budgets were flush, he really didn’t need to worry. But this time, with a pandemic-induced recession putting everything in flux, the state Legislature appears ready to take the plunge.
Hurst isn’t alone. There has been a flurry of lobbying this week over this seemingly arcane topic as the Senate debates its version of the long overdue state budget for this fiscal year. Other small-business advocates, such as the National Federation of Independent Business and the Massachusetts Restaurant Association, are expressing concerns. So is the Massachusetts Bankers Association. The headaches, they say, might not be worth the one-time gain.
Retailers and restaurants typically remit sales taxes on a monthly basis, three weeks after the month is over. It’s a decades-old process that many, including the Baker administration, argue should be updated for the digital age. The House and Senate finally seem to agree. Language in their budget proposals would require merchants to send the first three weeks of sales taxes to the state before the month is up.
Many small businesses would be exempt: those that don’t owe more than $150,000 in taxes to the state. That equates to just over $2 million in annual revenue. However, that threshold would mean many more businesses — i.e. those with more than $2.4 million in annual sales — would need to adjust their accounting methods ASAP.
This sales-tax acceleration could provide a one-time bump to the tune of nearly $300 million. That’s money that would normally go to the state in the next fiscal year, coming in the door a few weeks early.
Governor Charlie Baker last month proposed setting aside $100 million for down-on-their-luck small businesses, from this one-time boost.
There’s also a second step that Baker wanted that has the support of some lawmakers. His budget proposal called for same-day sales tax remittance by mid-2024. One joint venture, known as STAC Media, has lobbied heavily for this; it holds the patent on a process to facilitate the changeover. The House and Senate budget plans omit this language, but STAC and its allies continued their push this week.
The concept is being pitched as a small-business helper, as well — albeit one that is a few years off. STAC argues that modernizing sales tax collections would bring in extra money that otherwise slips through the cracks in today’s antiquated system, and theoretically some of those funds could be used to help small businesses. STAC proposes to exempt retailers and restaurants with fewer than $10 million in annual sales. STAC also argues that big chains benefit from their ability to hold onto this cash for up to seven weeks.
For now, the concept of speeding things up by a few weeks is the winning one at the State House. It remains unclear how much small-business assistance hangs in the balance.
Both the House and Senate budgets would commit about $50 million or so in new funds to help small businesses, roughly half of what Baker wants. A spokeswoman for Baker said the Legislature should have fully funded these programs at a time when the businesses need them the most.
The accelerated sales taxes wouldn’t technically be earmarked for those small-business programs. But everyone seems to agree more help is crucial. Joe Kriesberg, head of the Massachusetts Association of Community Development Corporations, said the small businesses his members assist need as much financial aid as possible now, although he is agnostic on how the state comes up with the cash.
Senator Eric Lesser, co-chair of the Legislature’s economic development committee, said the accelerated sales taxes would bring in hundreds of millions for this year’s budget, making it easier to offer more small-business relief. And more help should be on the way in a major economic development bill Lesser hopes to wrap up within the next month. Lesser also noted that Baker has leeway in terms of using money that the state has borrowed to pay for some of these grants and loans.
And House Speaker Robert DeLeo notes that the House has fought for investments in the small-business community since the pandemic’s onset. The accelerated sales tax program, he said, is simply a one-time fix to help produce a balanced budget.
Sensing the shifting political winds, Hurst’s group no longer adamantly opposes the concept of speeding up the sales tax process. Instead, the retailers association wants the acceleration language modified. Hurst has asked lawmakers to give merchants the option of estimating a prepayment, based on a portion of sales for the same time in the prior year. (About 20 other states allow something similar.) This would be far simpler, he said, for mom-and-pops to calculate than keeping track of 21 days of sales taxes, essentially in real time.
So far, Hurst hasn’t had much luck on that front. The issue now heads to a conference committee of House and Senate negotiators who will work to iron out differences and get a new state budget to Baker’s desk by the end of the month.
Yes, the budget avoids any major cuts or tax hikes, a holiday miracle that is made possible in part by previously approved federal aid and a drawdown from the state’s nearly $3.5 billion rainy day fund.
It’s unusual to make big policy changes like this in such a short period of time on Beacon Hill. But then, there’s nothing normal about designing a state budget during a pandemic — or running a small business during one.