Score another victory for the brick-and-mortar shops in the state. The playing field is about to get leveled.
With the backing of a US Supreme Court decision, Governor Charlie Baker is now pushing to require online marketplaces such as Amazon and eBay to collect sales taxes on behalf of their third-party vendors. Baker included the measure in his new state budget proposal, baking in nearly $42 million in additional revenue. The next steps are up to the Legislature, and that money will be tough for lawmakers to pass up.
For years, mom-and-pop shops complained that online rivals had an unfair leg up, because most of them didn’t collect the state’s 6.25 percent sales tax.
But that edge is rapidly disappearing. In 2017, the Baker administration put in place what’s known as a “cookie tax,” to get around the then-prevailing legal view that retailers didn’t need to collect sales taxes in states where they didn’t have a physical presence. The cookie tax essentially meant software and tracking codes on phones and computers counted as the necessary nexus.
Then came Wayfair. The Supreme Court, in a case involving the Boston-based online retailer, threw the nexus requirement out the window last year and opened the door to online sales taxes, within reasonable parameters, on a state-by-state basis.
Amazon, by the way, has collected sales taxes in Massachusetts since late 2013, because of its operations here. By the time of the Wayfair decision, Amazon was collecting in all states with a sales tax.
But there was a big loophole: Roughly half of the sales on Amazon’s site are from small- and mid-sized businesses, third-party vendors. Amazon didn’t collect taxes on those sales.
Amazon would be required to do so here if Baker’s bill becomes law, along with other online marketplaces such as eBay and Etsy. Massachusetts would join at least nine such states that have adopted similar laws.
An Amazon spokeswoman declined to comment about Baker’s proposal. But behind the scenes, Amazon has generally supported this movement. After all, most of these third-party vendors could use the tax help given the patchwork system in place today — and Amazon is happy to provide it.
For now, the Department of Revenue continues to use its cookie-tax parameters, essentially requiring online vendors with at least $500,000 in annual sales and 100 transactions in the state to collect. But with Baker’s bill, Amazon and other big marketplaces would collect taxes on behalf of smaller vendors that use those sites. And the state revenue agency has indicated to the Retailers Association of Massachusetts that it could soon reduce the dollar-figure minimum, possibly to as low as $100,000, and it might completely do away with the threshold for the amount of sales.
Yes, there’s always the possibility of a court challenge. Electronics vendor Crutchfield, for example, sued Massachusetts to overthrow the cookie tax, without any luck so far. A spokesman for the nonprofit Tax Foundation says Massachusetts’ bigger legal threat could come from not adopting a streamlined sales tax code — unlike 20-plus other states. South Dakota, one of those states, earned praise from the Supreme Court in the Wayfair ruling for its streamlined approach.
The governor’s approach lines up nicely with the Retailers Association of Massachusetts’ legislative strategy. State Senator Michael Rodrigues filed a marketplace bill that resembles Baker’s last week, on the retailers’ behalf.
The association’s members have long worried about losing business to online rivals, and to competitors just over the border in sales-tax-free New Hampshire. Beacon Hill can’t do much about New Hampshire, of course. But the online competitors are rapidly losing their tax advantage.Jon Chesto can be reached at firstname.lastname@example.org. Follow him on Twitter @jonchesto.