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Mass. sales tax collections fall for first time in 3 years

Boston, Massachusetts -- 6/22/2015-- Clothes hang on the rack at 2nd Time Around in Boston, Massachusetts June 22, 2015. Jessica Rinaldi/Globe Staff Topic: 25downpage-shop Reporter:

Jessica Rinaldi/Globe staff/file 2015

Massachusetts merchants often complain that shoppers skip brick-and-mortar outlets for online rivals. But local retailers now have some numbers that could back up that claim: Statewide, sales tax collections have dropped for the first time in more than three years.

The state Department of Revenue’s just-released June tax collection figures show a 1.3 percent decline from the same month a year earlier.

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The last time the agency reported a negative number in retail sales was in March 2013, when year-over-year tax collections fell by a similar amount.

A downturn isn’t bad news just for retailers. The 6.25 percent sales tax represents a crucial source of revenue for the state, more than $6 billion in the last fiscal year alone, at a time when state tax collections in general are slower than expected.

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In particular, designated portions of the sales tax help to subsidize the Massachusetts Bay Transportation Authority and the state’s public school construction program.

It’s too soon to draw any big conclusions on what this could mean. The June decline — the number actually reflects May sales — could indicate the state’s economy is slowing. But it may just signal the increasing toll that online shopping, particularly on mobile phones, is taking on traditional merchants.

Or it could be a momentary blip in the data, before growth resumes.

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“There are certainly some signs that things are slowing down,” said Eileen McAnneny, president of the Massachusetts Taxpayers Foundation. “The sales tax is the second-largest source of tax revenue for the Commonwealth. If it’s going down, we need to be paying careful attention to that.”

The year-over-year decline followed two months with meager gains: a 3.3 percent increase in May and a 1.4 increase in April. For the full fiscal year, which ended June 30, sales taxes were up 4.8 percent.

Mike Heffernan, the state’s commissioner of revenue, is paying careful attention. But he signaled he isn’t worried yet.

“We don’t have enough to see a trend developing,” Heffernan said. “We think it’s too early to tell, but we’re watching those monthly numbers.”

Heffernan said he’s encouraged that Massachusetts employment growth continues to look healthy.

A percentage of online purchases is also captured in the sales tax numbers.

For example, Amazon.com started handing over sales taxes to the state in late 2013, the result of negotiations between state officials and the Seattle company that reflected its growing physical presence here.

Jon Hurst, president of the Retailers Association of Massachusetts, said the drop last month is minor when compared to the plunges that plagued the industry throughout 2008, during the depths of the Great Recession. Hurst attributed much of his sector’s strong momentum during 2014 and 2015 to pent-up demand, as consumers got more comfortable with shopping again after holding back in the post-recession years.

But now shoppers are starting to get conservative again, Hurst said, because disposable income hasn’t increased enough.

And more consumers are buying online or through their phones than ever before.

He said he’s still hoping for a Christmas shopping season with some sort of year-over-year revenue gains in the stores, and is optimistic that “somewhat flat” will be the end result for the industry this year.

In particular, Hurst noted that many retailers will take a hit because legislative leaders decided not to approve a two-day sales tax holiday this August. The reason? Slower-than-expected tax receipts across the board.

Circle Furniture co-owner Harold Tubman said past sales tax holidays helped get shoppers thinking about big-ticket purchases such as furniture. He said he expects a “huge loss of business” in August this year.

Tubman said he is also starting to notice a slowdown in foot traffic at his six-store furniture chain.

“We keep hearing the economy is in fine shape,” Tubman said. “I do question that at times.”

Jon Chesto can be reached
at jon.chesto@globe.com. Follow him on Twitter @jonchesto.
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