BOSTON — Amazon, the world’s largest online retailer, will begin collecting Massachusetts sales taxes starting next fall under a new agreement with the state that could net the commonwealth tens of millions of dollars next year, according to the Patrick administration.
Small businesses have been pressuring Gov. Deval Patrick to reach a deal with Amazon over sales tax collections in time for this holiday shopping season, but the agreement will not take effect until Nov. 1, 2013.
“I value the contributions large and small employers alike make to Massachusetts’ economic vitality, and this agreement captures that,” Patrick said in a statement. “We are thankful Amazon was willing to come to the table and we will continue our conversations with them about creating jobs here. This agreement is a win for all sides, and I am pleased it promises to generate millions in long-term revenue for the commonwealth.”
Amazon will also support Massachusetts in its effort to promote a national solution to the issue of online retailers collecting sales taxes on purchases. A number of states, including New Jersey, have reached similar agreements with Amazon.
Administration and Finance Secretary Jay Gonzalez told the News Service that the Department of Revenue’s best estimate for sales tax collections in fiscal 2014 are in the low tens of millions, which will be factored into the state’s revenue estimates that economists and lawmakers are meeting this week to discuss.
“It’s not going to solve all of our revenue problems, but it’s going to help mitigate the erosion of sales tax revenues. That is a function of the fact that more and more people are buying stuff from remote Internet retailers and less from traditional brick-and-mortar retailers who are physically here in Massachusetts so it’s very good news,” Gonzalez said.
Under federal law, online retailers do not have to collect and remit sales taxes from customers to states where the company does not have a physical presence.
Amazon purchased a robotics company in North Reading earlier this year, and opened a research office in Kendall Square in Cambridge, establishing what some officials suggested was the “brick and mortar” nexus necessary for the state to force the company to collect the taxes from its online shoppers.
The related business interests, however, are unlike the distribution facilities directly related to its online retail operations that other states have used to force agreements, Gonzalez said. More than a dozen states have reached deals with Amazon over tax collections, including Nevada, New Jersey, Texas, California and Pennsylvania.
Though some of those states struck direct agreements with Amazon to build new facilities or create jobs, Massachusetts officials said Amazon only committed to growing here in the future in its related business ventures. Gonzalez said through the negotiation process, state officials built a good relationship with Amazon and believe Amazon sees Massachusetts as a “growth area” and plans to “ramp up” its presence.
“We look forward to creating hundreds of high-tech jobs in Massachusetts and continuing to work with Gov. Patrick, state leaders, retailers and Congress to pass federal legislation permitting interstate sales tax collection. Federal legislation is the only way to level the playing field for all sellers, the only way for states to obtain more than a fraction of the sales tax revenue that is already owed and the only way to fully protect states’ rights,” said Paul Misener, Amazon vice president of global public policy.
According to the Alliance for Main Street Fairness, Massachusetts has lost out on $600 million in sales tax collections from e-commerce since 2007, including $132 million in 2012 and $116.8 in 2011. The state does have a “use-tax” provision in the tax code requiring residents to record and pay sales taxes on purchases made out-of-state or online, but enforcement is not highly successful.
Though the agreement will pertain only to purchases on Amazon-owned sites, there is a hope that Congress will take notice and other online retailers may help exert pressure to get a federal legislative compromise passed.
“I think the hope is this would create some momentum. There’s a precedent now in Massachusetts. Maybe we can convince some other retailers to voluntarily agree, but at the end of the day what we’re pushing for and hoping for is a federal solution to this that levels the playing field for everybody,” Gonzalez said.
The Massachusetts Main Street Fairness Coalition, made up of retailers, local officials and labor unions, said it was “grateful” that its members would not have to go through another holiday sales season competing with Amazon and the built-in disparity in pricing due to the 6.25 percent sales tax.
“Although we would have preferred a level playing field this holiday season, we are grateful to Gov. Patrick for his tireless work on this issue. Unfair sales tax application is an antiquated policy that favors out-of-state businesses over local employers and it has to end. The announcement today is an important and significant step toward realizing that ultimate goal,” Jon Hurst, president of the Retailers Association of Massachusetts, said.
Salem Mayor Kim Driscoll, the co-chairwoman of the coalition, said Massachusetts was helping to lead the way toward a Congressional solution.
“Once again, Massachusetts is taking action on an important issue ahead of our leaders in Washington,” Driscoll said in a statement. “In the age of the smartphone, sales taxes should be applied the same for purchases whether made on Main Street or online. We are grateful to Gov. Patrick for his leadership in leveling the playing field between our Main Street businesses and Amazon.”