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Internet sales tax could help solve state’s transportation mess

Massachusetts needs a modern, functional infrastructure and transportation system to attract the innovation economy jobs of the future. So it is only logical that the innovation economy should be a funding source for rebuilding and improving our infrastructure.

Each year, according to the Massachusetts Retailers Association, the Commonwealth loses approximately $335 million in sales tax revenues to online or other remote sales, such as telephone orders and catalog shopping. Massachusetts should act now to collect this revenue and earmark it for infrastructure spending.

Massachusetts does not collect sales taxes on remote sales unless a company has a physical presence in the state. This creates a tax advantage for online and other out-of-state vendors and penalizes local businesses, especially retailers, who not only face price competition from online giants, but also have to charge their customers sales taxes. There are more than 500,000 retail jobs in the state, and they are severely threatened by this uneven playing field.


Treasury calculations show that these funds could support more than $3 billion in capital borrowing over the next 25 years plus an additional $2 billion in pay-as-you go expenditures. This is by no means the total answer to our transportation and other infrastructure needs. But it is a significant down payment.

We have been fortunate that Massachusetts has had a higher growth rate and a lower unemployment rate than the national average in recent years. However, there are no guarantees that this will continue — especially if we fail to provide the basic infrastructure businesses need to grow: transportation, communications, utilities, core public services.

Any motorist who has hit a tooth-jarring pothole or any mass transit commuter whose trip has been delayed by faulty equipment or breakdowns understands the need. The
MBTA lurches from one patchwork remedy to another; promised mass transit expansions are in jeopardy; regional transit authorities are short of resources; and roads are badly in need of repair. And that's just transportation. Massachusetts has other critical needs, ranging from gaps in high-speed Internet service coverage to decrepit public facilities virtually everywhere.


Online sales already are subject to use taxes, but these are rarely collected. So most taxpayers would see taxing Internet sales as a tax increase. A hike, however, would be more palatable if we make it clear to taxpayers where their money is going.

Working from the retailers' widely accepted $335 million estimate, we project that approximately $54 million would automatically go to transportation because, by law, a penny of the sales tax is pledged to the MBTA. An equal amount would go to the Massachusetts School Building Authority which, by statute, also receives a penny. That would leave $227 million in new unobligated revenue, which, combined with the money earmarked for transportation, would yield $281 million annually for public facilities and transportation.

Using a conservative calculation of the amount of bonding those revenues could support, and an equally conservative 4 percent interest rate (the state is now borrowing at about 3.3 percent), we calculate $3.1 billion in bonds could be sold with no impact to the state's highest-ever bond rating. About $80 million of the annual revenue would not be needed for debt service, so that would provide $2 billion over 25 years in pay-as-you-go money that could fund maintenance or operating costs.

The most effective path to collecting Internet sales tax revenues would be for Congress to approve national enabling legislation for such levies, and for Massachusetts to adopt legislation championed by Representative Jay Kaufman of Lexington to bring the state into compliance with the proposed national standard.


But given the dysfunctional politics in Congress, many states have stopped waiting for Washington and are acting on their own, either by adopting new laws and regulations or by reaching agreements with such Internet sales giants as Amazon to start collecting taxes on Internet sales.

There are no magical, painless ways to pay for much-needed transportation investments. But taxing Internet sales is fair, reasonable, and brings our tax system into line with modern business practices. Our retailers are asking for Main Street fairness, and our economy is demanding up-to-date infrastructure. We've kicked the can down the road for too long. It's time to deliver.

Steven Grossman is Massachusetts state treasurer.