So when will Massachusetts land its Wayfair Windfall?
Not anytime soon, it turns out. The US Supreme Court’s landmark decision that allowed states to collect sales taxes on a larger volume of online purchases is now more than a year old, long enough for us to get a good glimpse of the riches supposedly pouring into our coffers.
More like a trickle. With Massachusetts adopting new standards this month, I checked in with the state Department of Revenue to find out how much money the state scooped up from retailers that registered as remote sellers in the fiscal year that ended on June 30. This was the first full budget cycle since the Wayfair ruling of June 2018. More important, for Massachusetts, it was also the first year of the so-called cookie tax, a separate effort by the revenue department to collect online sales taxes.
So how much are we talking about? The agency’s answer: $60 million.
Don’t get me wrong; no one should complain about getting $60 million. But that’s barely a rounding error compared to the $6.8 billion in total sales and use taxes that the state collected over the same time. And it also falls far short of earlier estimates, including a widely cited US Government Accountability Office report from 2017 that predicted up to $279 million in new revenue for Massachusetts once these remote sellers started adding to the till.
But expect that $60 million to change — upward. Why? State lawmakers are requiring the revenue department to change the way it collects taxes on remote sales, driven in large part by the Wayfair decision. (Feel free to speak up at a public hearing on Nov. 7.)
Collecting sales taxes through remote sellers has long been a Holy Grail for state tax collectors in this e-commerce age. Before Wayfair, a Supreme Court ruling dating back to the era of catalog sales, the 1992 Quill decision, had been widely considered the law of the land. Quill shielded out-of-state sellers if they did not have a physical presence in a particular state, such as a store or warehouse.
The Massachusetts DOR didn’t want to wait for the Wayfair challenge to be resolved. The agency imposed its own “cookie tax,” deeming that the files that online sellers place on consumers’ phones and laptops created a kind of physical presence under Quill. These cookie rules did not get imposed in October 2017 without controversy: Electronics seller Crutchfield sued to stop them almost immediately, in its home state of Virginia. Earlier this month, a judge there dropped the case on jurisdictional grounds.
Not that it will likely matter in the end. The revenue department’s new rules would strike the cookie tax reasoning and get the state in sync with the Wayfair decision. These rules took effect on Oct. 1, but the process to make them permanent is now underway.
The new rules are tougher than the old ones. Under the “cookie tax,” remote sellers had to remit to Massachusetts if they had sales totaling $500,000 in the state a year, and made 100 transactions here. Under the new rules, the dollar threshold drops to $100,000. The volume threshold? Gone entirely. Plus, the new regs require online marketplaces (Amazon, Etsy, and the like) to collect and remit taxes on behalf of third-party vendors that use their sites.
Jared Walczak, senior policy analyst at the D.C.-based Tax Foundation, said officials in most states have seen far less online tax revenue than they initially expected when they rejoiced over Wayfair. Collections are falling short of even the low-end scenarios portrayed in that GAO report. (Massachusetts’ promised windfall was supposed to be a minimum of $169 million.) Walczak said government officials didn’t have a good grasp of just how much they were already collecting in online sales taxes. Amazon collects them across the country as a matter of course, and has been doing so in Massachusetts since 2013. Other brick-and-mortar chains, ranging from Walmart to Bed Bath & Beyond, have gobbled up online-only sellers, so those e-comemrce businesses, too, had started remitting sales taxes under the Quill standard.
The Retailers Association of Massachusetts had once hoped for an additional $300 million a year, post-Wayfair. Not anymore. For now, the group’s executives say they’re just happy that the playing field has been leveled. Their online rivals need to collect the 6.25 percent, like everyone else around here (except, of course, for stores just over the line in New Hampshire).
The new state budget assumes $42 million in additional sales tax revenue this year because of the reduced threshold and the new rules to capture online marketplace sales. Maybe we will get that much. Maybe not. Either way, anyone waiting for a big Wayfair Windfall will likely be disappointed.