AUG. 12, 2015 • BY JON HURST

During the last week of July, the Massachusetts Legislature overwhelmingly passed the 11th sales tax holiday held over the past 12 years. For that action, countless mom and pop retailers are very grateful. The holiday represents a state version of Small Business Saturday, in which our public policy leaders create real consumer incentives, and send a very strong message to our residents that it matters where they spend their dollars. And in these days of unlimited shopping options—including countless tax free sites right on our smartphones combined with price comparison applications--the state incentive is far more important today than it was in the first year, 2004.

If the Sales Tax Holiday helps your sales and traffic and that of your local retail community, please be sure to thank your local legislators for this important economic investment. It is vital for the future that they know it is important to you and your customers.

The sales tax holiday this year was more controversial than in past years due to rhetoric from the opposite ends of the political spectrum. On the right, there were arguments that the two days are nothing more than “crumbs” to small businesses and to taxpayers. To those opponents, I say if you are starving, you will take the crumbs.

But the loudest opponents come from the left, ignoring consumer trends and small business closures on our Main Streets. They shouted that the holiday was an unaffordable gimmick, putting aside the reality of retail sales shifts to internet sites which employ no one locally, and which collect no sales taxes.

The facts are that internet sales—the majority of which continue to be tax-free—have enjoyed double digit sales growth virtually every year out of the last 15. At the same time, sales at our local stores have been essentially flat after inflation. This is why those who want more taxes to spend have lamented limited sales tax revenue growth. The truth is that the sales tax is virtually 100% avoidable. And although New Hampshire has always been a problem, the shifting sales are now to the internet, driven by tax free sites and the ease of comparison shopping tools available right on our phones.

In 2011, Cape Ann Economics forecasted a tax revenue loss of approximately $400 million in Massachusetts to those remote sellers, growing to $800 million by 2020. Math will show you how many billions of dollars in actual retail sales leave the state to create those huge tax losses. And with those lost sales, our Main Streets increasingly become dark.

In 2015, Opinion Dynamics polled 450 registered voters in Massachusetts which responded that 72% would be likely to return their purchases in state rather than with tax free NH or the internet if a Sales Tax Holiday was authorized. Furthermore, the Beacon Hill Institute at Suffolk University estimated that a mean of $168 million in retail sales would return to MA from NH and tax free internet sellers if a sales tax holiday was passed, creating 627 permanent jobs, $37 million in new employee income and $50 million in new investment. Consumers simply are looking for a reason to invest locally, and the multiplier effects are enormous.

But perhaps the opponents on the left also need to look at the bigger issue of the sales tax and just how regressive it is, and the fact that it is 100% avoidable. The sales tax disproportionately hurts low income families, who can’t afford to travel to a New Hampshire, or do not have credit cards and internet access. Higher income families can and do avoid the tax, and understand that they can get at least a 6.25% discount on their purchases, which are available on their doorsteps the very next day.

Frankly, the primary reason why 18 states have held sales tax holidays over the past 15 years is the growing, tax free internet competition. Retailers have been screaming for 18 years to fix the unfair tax laws which discriminate against local employers. Like the taxi drivers protesting regulation free Uber, local stores are simply being discriminated against by state tax policy, versus untouched and growing competition.

States have been waiting for Congress to fix this problem by asking them to grant the authority to go after internet sellers, but Washington hasn’t acted. This lack of Congressional action is due to the fact the sales tax frankly isn’t their problem; it’s state tax policy, and therefore the states’ problem.

Liberal groups in MA are preparing to begin a campaign to pass a graduated income tax. If they are sincere about fair taxation, not just more taxation; and if they do support small businesses and the future of our Main Streets; they will follow the lead of former Governor Patrick and propose a large cut in the sales tax to support our working families and small businesses. A lower rate will mitigate, and a repeal of the sales tax will eliminate the need for a sales tax holiday.

Sales tax holidays are not a cure to discriminatory tax laws, but they do represent a life vest to help counter a 6.25% anchor around Main Street’s neck. And the important discussion around the tax incentive creates an opening for a real discussion on fair tax policy.

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