May 1, 2018 By Bill Rennie, RAM Vice President

Many in the business community were pleased to see that painstaking policy work undertaken by Speaker Robert DeLeo and Chairman Jeffrey Sánchez of the House Ways and Means Committee had resulted in the removal of a real-time sales tax provision from an earlier version of the state budget currently being debated in the state house. They propose instead to create a bipartisan and commission to study the feasibility of a monthly estimated sales tax payment structure. This eminently sensible approach allows a thoughtful review of Massachusetts’ sales tax collection system, and removes the need for the immense technological overhaul real-time sales tax would require.

A real-time sales tax system would require retailers in the Commonwealth to remit sales tax from electronic transactions as they occur. The concept has been universally opposed by Massachusetts businesses, with a broad coalition of retailers, banks, payments providers and others, urging policymakers to reject real-time sales tax on the grounds that it is costly, burdensome and doomed to failure.

The case against real-time sales tax is overwhelming. Even if the technology to provide such a system were to exist (and there is little evidence that it does), implementation would require a wholesale reworking of retail technology and software, imposing a huge cost and compliance burden on payments networks, financial institutions, and merchants of all sizes, all while negatively affecting millions of consumer card payments and electronic funds transfers.

Even if robust technology were developed that made real-time sales tax collection possible, a complex challenge would exist in the form of returned merchandise. In the sales of goods, returns are frequent and made over lengthy time periods. National Retail Federation (NRF) data show eight percent of purchases are returned, with return rates of 30 percent or more for online purchases. In order to avoid situations in which merchants refund customers money that has already been paid in tax, the government would need to return money to merchants in real-time. To do otherwise could cause hardship, particularly for smaller businesses. It is not clear how this essential component of a real-time sales tax scheme would work.  

We applaud the recent diligence of the Speaker and the Ways and Means committee in weighing the evidence for and against real-time sales tax collection. It is no surprise to us that they came to the conclusion that it must not go forward. In doing so, they mirror the findings of investigations in other states around the nation. Nowhere else does real-time sales tax collection exist. A recent initiative in Connecticut failed after review by that state’s Department of Revenue. The bipartisan National Conference of State Legislatures (NCSL) examined it and concluded “real-time sales tax process is not a solution.”

Here in Massachusetts, the business community is united in opposition to the real-time sales tax proposal. To date, 32 companies and trade associations — 11 of which are headquartered in the state, have submitted comments to the legislature detailing their concerns. Collectively, we appreciate the leadership of Speaker DeLeo, Chairman Sánchez and the members of the Ways and Means Committee in abandoning, once and for all, further pursuit of an untested and unproven real-time sales tax theory. The evidence clearly indicates that they have done the right thing.