Sales Tax Initiative Leveraging Debate on How Government Affects Sales and Operating Costs on Main Street
October 24, 2107 By Jon Hurst, President
The Retailers Association of Massachusetts has been investing considerable time and resources this fall to qualify a ballot initiative to reduce the sales tax rate back to the 2009 level of 5.0%, as well as to authorize an annual August two day sales tax holiday. Our membership polling clearly showed overwhelming support for the Association to take this rare step. As an industry, we have not used the ballot initiative mechanism since 1994, when the voters approved a RAM sponsored measure to make Massachusetts the last state in the nation to allow stores to open on Sunday mornings, and on the three summer national holidays.
The existence of the sales tax ballot measure creates an important opportunity to discuss what every Massachusetts small business owner needs—higher sales and lower costs. Unfortunately, for many local employers, both of those needs are heading in the wrong direction. And make no mistake about it—government imposed taxation, as well as labor and cost of operations mandates can and do create financial incentives on where consumers spend their important discretionary dollars. With consumer spending representing 70% of our economy, any state policy which incents our residents to spend elsewhere instead of right here in the Commonwealth is economically dangerous in the age of the smartphone.
The 25% sales tax increase in the Great Recession, and the lack of a sales tax holiday over the past two years couldn’t have happened at a worse time—just as mobile commerce exploded. And despite two decades of advocacy and debate, most of those online marketers are still not collecting the 6.25% Massachusetts sales tax. The result has been sales reductions for our local small businesses, and a more regressive state tax system for our lower income families and seniors on fixed incomes.
For some of our members which sell consumables and tend to see their customers every week, the rate reduction is what is needed to bring traffic and sales back into the state from untaxed deliveries to consumers’ doorsteps, or from their drives to New Hampshire. For higher end product sellers, the sales tax holiday was a lifeline of 2 days out of 365 where they had tax parity under the law to pull back those durable good product sales which were otherwise going out of state. And even for some of members which are less affected by the sales tax—such as food stores, restaurants, and gas stations—they understand the cohesiveness of our Main Streets and that commercial districts are at stake today as consumer visits drop. Indeed, tens of billions of dollars’ worth of consumer sales are getting diverted from our local economy to out of state, untaxed competitors.
In the coming weeks, RAM will be developing research which will show our public policy leaders and our voters how a lower tax rate will create more taxable consumer transactions in the state, while protecting corporate and individual income tax revenues, and local commercial property taxes. Taken together, the so called tax loss to the state is nowhere near where the tax and spend lobbies will claim. It simply isn’t accurate to say tax revenues will drop 20% with the rate reduction, since vital consumer transactions will return, jobs will be saved and less stores go dark. Anyone who truly understands consumer behavior and economic multiplier effect principles will agree with those facts.
And just who will be on the other side arguing for the continued high and regressive sales tax? Likely the very same big public union special interests which in recent years brought us the mandatory 5 day paid sick leave law, and 38% minimum wage increase. And now they are promoting 3 more ballot questions which could go before the voters in November, 2018. Those questions include a 4% income tax surcharge netting $2.2 billion annually from individuals (and certain small business owners such as Subchapter S corporations) earning $1 million or more; another 37% minimum wage increase to $15 per hour; and additional mandatory paid leave requirements, granting 90% wage replacement for 16 weeks of family leave, and 26 weeks of medical leave, even for part-timers and teenagers.
The initiative also puts the retail sector back on the front burner. With so much of the recent political focus on biotech, technology, film industries, and labor priorities,adequate attention has not been paid to the proliferating dark store fronts.
The Massachusetts Senate has now convened a Retail Industry Task Force including 7 Senators, 5 RAM member representatives, and 2 representatives of organized labor. From this fall through next spring, the challenges of Main Street employers will be front and center before that Task Force, in a long overdue discussion about an industry which has been simply taken for granted on Beacon Hill. We're hopeful that RAM members around the state will engage with the Task Force when they meet regionally in your area.
We recognize that the voters may be given the opportunity to put into place a far more progressive state tax system when you combine the public unions’ income tax increase question with the sales tax reduction. It will be interesting to see where some interest groups come down on the questions. Do they want a fairer tax system for everyone, including local small businesses, low income families and seniors? Or is the objective just for more taxation and more state spending, on top of a state budget which has already doubled in the last 15 years? And do “one size fits all” state labor mandates really have a place in the 21st Century when goods and services can be sourced and received in hours from anywhere around the world right from our smart phones?
The coming months will be telling. There will be opportunities for important discussions. Rest assured that RAM isn’t going to sit and watch more of our members close their doors without a fight.