Island shoppers will lose the tax-free benefits of online purchases with Amazon. The world’s largest online retailer will begin collecting Massachusetts sales taxes starting next fall under a new agreement with the state, according to the Gov. Deval Patrick administration.
Small businesses have been pressuring the governor 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 November 1, 2013, the State House News service reported.
“I value the contributions large and small employers alike make to Massachusetts’s economic vitality, and this agreement captures that,” said Governor Patrick. “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.”
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.
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.
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 Governor Patrick for his tireless work on this issue,” said Jon Hurst, president of the Retailers Association of Massachusetts. “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.”
Amazon will also support Massachusetts in its effort to promote a federal solution to the issue of online retailers collecting sales tax on purchases from individual states. A number of states, including New Jersey, have reached similar agreements with Amazon.