Proposed Massachusetts Sales Tax On Internet Transactions

Tax Act

More and more consumers are choosing to make purchases online today. Retailers lure them on line with web sites or even mobile apps for smart phones that compare prices and features on items from diverse sources. One selling point is that such transactions are usually free of state sales tax. In Massachusetts, though, that may not be the case for long.

Even as members of most committees of the legislature leave town for the summer break, the Committee on Revenue quietly sent legislation that would let Massachusetts start collecting sales tax on transactions that take place on the Internet. Supporters say this sort of tax would increase revenues by $335 million every year. The proposal has sparked intense debate on the propriety of the practice as well as the specifics of the legislation. Wal-Mart is a major funding source for groups looking to add similar legislation in other states.

The bill, H 3672, was voted out of committee with an eight to two majority. Its purpose is to permit the state to collect the already established sales tax of 6.25 per cent from vendors who sell by mail otherwise taxable items to anyone in the state by phone or on the Internet without any physical facilities in Massachusetts. Implementing the new law would require enabling legislation from the US Congress. Massachusetts would be the 24th of 50 states to request such laws from Congress. In other states, revenue has not increased as expected as the retailer Amazon has ended ties with affiliates in those states, putting them out of business, and eliminating any taxable body in the state.

Critics paint the proposal as a new tax and a barrier to economic growth. Proponents point out that it merely seeks to collect taxes due but currently not paid. The additional money would supplement revenue streams from income tax and corporate and property taxes. The dollar amounts received from existing taxes is steadily decreasing, and coupled with unpaid taxes the decreasing revenues create a need for a new revenue source. Activists also point out that online tax free sales by Internet retailers are overwhelming brick and mortar retailers in Massachusetts and elsewhere.

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