Massachusetts Study Finds Online Loophole Costs Jobs, Sales, and Revenue

A new study released this week shows the far-reaching, negative impact that sales tax inequity has on a state. On Tuesday, November 13, the Massachusetts Main Street Fairness Coalition released an economic study that shows that sales tax inequity has cost Massachusetts 1,970 new jobs, $279 million in sales to local businesses, and $387 million in state tax revenue.

The study, “The Impact of the Internet Sales Tax Disparity on Massachusetts Tax Revenues, Sales, and Jobs [1],” prepared by Cape Ann Economics and authored by Edward Moscovitch and Cameron Huff, examined $6 billion dollars in online purchases made by Massachusetts consumers in 2011.

Kim Driscoll, the mayor of Salem and co-chair of Massachusetts Main Street Fairness Coalition, said, “This report paints a clear picture of the adverse impact this loophole continues to have on our state’s economy and underscores the need for action to level the playing field for our businesses.”

The study comes just over a month after a coalition of eight Massachusetts mayors wrote to Gov. Deval Patrick [2] to urge him to require that prior to the holiday shopping season Amazon.com begin collecting and remitting sales tax for purchases made by Massachusetts residents. Amazon recently purchased a robotics company based in North Reading and earlier this year opened a research office in Cambridge.

The Cape Ann Economics Study noted: “If Internet and other remote sellers had been required to collect the tax in 2011— eliminating their tax-based price advantage — we estimate sales by Massachusetts bricks-and-mortar stores would have increased almost $280 million. The added sales could have supported 1,970 new jobs through the combined impact of direct hiring in the retail sector and the ripple effect of the new spending across the state economy. By 2020, the additional sales would total $587 million, with 4,154 new jobs.  These economic impacts in turn would generate $8 million of new income and property tax revenues in 2011, rising to $18 million in 2020.”

The study estimates that annual sales tax revenues to be regained would double from $387 to $783 million in 2020], based on projections for continuing strong growth in e-commerce sales through the end of the decade.

“This is a valuable study that shows the consequences, in terms of lost jobs and revenues, of a policy that is unfair and badly out of date,” said Michael J. Widmer, president of the Massachusetts Taxpayers Foundation. ”As online sales continue to grow, the costs to the Commonwealth will only get greater and greater over time.”