Retail Impacts of Gov. Baker’s $48.5 Billion Budget Proposal


Gov. Charlie Baker’s FY23 state budget proposal, H.2, a $48.5 billion spending plan that was accompanied by a separate $700 million tax cut proposal (H.4361 & H.4362), is now under consideration by the MA House and Senate.   

Unfortunately for sellers, the Governor has again proposed to move the state toward a “Real Time” sales tax collection scheme, or a daily remittance requirement.  The Governor has proposed this now for the 6th year in a row.  The proposal requires “third party processors (predominantly credit card companies) to remit to the Commonwealth, on a daily basis, the portion of a sale that is attributable to sales tax, with an effective date of July 1, 2025.”  This troubling proposal can be found in Section 34 of the budget.  

Again, RAM is strongly urging the Legislature to reject this misguided approach to tax collection and remittance.   This proposal would require a second payment system to be built to accommodate the state’s daily collection and remittance process for credit and debit transactions.  Retailers, credit card companies, processors and the DOR would incur costs estimated at over $1.2 billion in new expenses to build out and maintain a new system – costs that would be passed onto consumers and taxpayers – in a process that, if even possible at all, would take many years to implement.  Meanwhile, the existing system and processes would remain in place for all sales involving cash, check, gift cards, store brand cards and split tender transactions. 

Ironically, all agree that the vast majority of sales tax fraud in the system primarily occurs in cash transactions.  Credit and debit card transactions are all recorded and information is available for review.  There is little to no sales tax fraud in credit/debit transactions – yet this is a proposal that only deals with credit/debit transactions.  A former Connecticut Commissioner of Revenue testified in 2013 that this was “a solution in search of a problem, or at least it’s the wrong solution.”  And we still agree. 

There would be costly fees that would be associated with the processing costs of this new network.  Who will pay for these added processing costs?  Retailers have served as the state’s tax collectors since 1966 and they receive no compensation for providing that service.  Meanwhile, 28 out of the 45 states that have a sales tax do compensate their sales tax collectors – retailers and restaurants – via some form of a vendor discount or collection allowance.  We simply cannot ask our local sellers to fund the burden of maintaining two collection processes without compensation.  Daily remittance is an untested theory, a collection proposal that does not exist in practice in any form in any state or municipality in the country.  And now since we’ve switched to an advanced sales tax payment process just last year, this issue should be laid to rest once and for all. 

Elsewhere in the budget, in Section 10, the Governor again proposes to allow for the use of debit cards in lottery purchases.  RAM opposes this change.  When consumers use a credit or debit card to make a purchase at a retail store, banks charge that retailer a “swipe fee” to process the transaction, also known as an interchange fee.  According to the U.S. Federal Reserve, the average debit fee ranges from $0.23 to $0.44, depending on the bank.  Swipes fees would eat into lottery sales that are now paid for in cash, which carries no fee.  The state should not allow any debit or credit card sales of lottery products unless the state is willing to pay for all of the related interchange and swipe fee charges.

The impacts of these two budget proposals are real and they are costly.  All RAM members are encouraged to share your concerns with your local legislators.