Editorial Staff

Pioneer Institute Study Calls for Streamlining State Sales Tax Revenue Collection

/in , , , , , /by Editorial Staff
Share on Facebook
Share on Twitter
Share on
LinkedIn
+

Reforms would speed collection as state tax revenue plummets

BOSTON – At a time when state tax revenues are plummeting, a plan to modernize sales tax collection could get money into state coffers more quickly, according to a new policy brief published by Pioneer Institute.

“Commonly used technology makes it possible for businesses to remit the sales taxes they owe more quickly without having to adopt expensive new systems,” said Greg Sullivan, co-author with Andrew Mikula, of “As COVID-19 Pandemic Spurs Consumer Shift to E-Commerce, the Massachusetts Sales Tax Collection System Deserves Renewed Scrutiny.”  “This would allow the Commonwealth to collect much-needed interest on the funds.”

Social distancing measures and the closing of non-essential businesses were necessary to control the spread of COVID-19, but they caused retail sales to plummet.  The Massachusetts Taxpayers Foundation now estimates that state sales tax revenues for the upcoming fiscal year will be over $2 billion less than it had projected in January 2020, a drop of more than 27 percent.  Sales taxes are expected to account for more than a third of the anticipated drop in overall tax receipts.

The shutdown has had a particularly devastating impact on brick and mortar retailers that were already struggling with the rise of online shopping.  According to Euler Hermes, a credit insurance firm, the U.S. has lost 56,000 retail stores since 2008, accounting for 670,000 jobs.

“For the retail sector, COVID-19 has been like pouring gasoline on a fire that was already raging,” said Pioneer Executive Director Jim Stergios.

A two-part proposal Governor Baker included in his January state budget submission aims to streamline state sales tax collections.

Under current law, retailers file monthly returns and remit sales taxes collected until the 20th of the month.  Under Baker’s plan, retail establishments that collected more than $100,000 in sales taxes over the previous 12 months would have to remit taxes owed during the first three weeks of a month during the final week of the same month. Taxes collected during the final week would be due the next month.

Only 10 percent of state businesses meet the $100,000 sales tax threshold, but they account for 90 percent of sales tax revenue.

Currently, merchants are entirely responsible for collecting sales taxes and remitting the money to the state Department of Revenue (DOR).  When a retail customer makes a purchase with a credit or debit card, a third-party processor requests authorization for the purchase amount from the card company.  If it’s authorized, the processor approves the transaction and processes payment from the credit or debit card’s sponsoring financial institution to the merchant.

Under the governor’s proposal, taxes owed would flow directly to DOR instead of first going to the merchant.

Opponents of the plan argue that implementing the plan would require one-time costs of $1.2 billion, including $418 million for retailers, $99 million for telecommunications providers and $700 million for payment processors.  They estimate recurring annual costs to be $28 million.

Supporters counter that the cost to retailers would be minimal, since no hardware changes would be needed to replace existing point-of-sale card reading devices and that costs to other parties would be far less than opponents claim.

Sullivan and Mikula find that the first part of Baker’s plan makes sense and is entirely feasible because advances in electronic data processing and electronic funds transfer have eliminated the need for protracted remittance timetables.  Nineteen states already require these advance tax payments.

They recommend a scaled-down adoption of the second part of Gov. Baker’s proposal, arguing that it should only be applied to businesses with annual sales of $10 million or more.  This approach would allow the Commonwealth to determine how well direct payments from third-party processes to DOR work before determining if it makes sense to expand the practice.

About the Authors

Gregory Sullivan is Pioneer’s Research Director. Prior to joining Pioneer, Sullivan served two five-year terms as Inspector General of the Commonwealth of Massachusetts, and held several positions within that office previously. Sullivan was a 17-year member of the Massachusetts House of Representatives, serving on the committees of Ways and Means, Human Services, and Post-Audit and Oversight. Greg holds a bachelor’s degree from Harvard College, a master’s degree in public administration from The Kennedy School of Public Administration at Harvard, and a master’s degree from the Sloan School at M.I.T., with a concentration in finance.

Andrew Mikula is the Lovett & Ruth Peters Economic Opportunity Fellow at Pioneer Institute. Mr. Mikula was previously a Roger Perry Government Transparency Intern at Pioneer Institute and studied economics at Bates College.

About Pioneer

Mission

Pioneer Institute develops and communicates dynamic ideas that advance prosperity and a vibrant civic life in Massachusetts and beyond.

Vision

Success for Pioneer is when the citizens of our state and nation prosper and our society thrives because we enjoy world-class options in education, healthcare, transportation and economic opportunity, and when our government is limited, accountable and transparent.

Values

Pioneer believes that America is at its best when our citizenry is well-educated, committed to liberty, personal responsibility, and free enterprise, and both willing and able to test their beliefs based on facts and the free exchange of ideas.

Get Our COVID-19 News, Tips & Resources!

  • This field is for validation purposes and should be left unchanged.

Related Posts

COVID-19 Vaccine: The End of the Epidemic is Within Reach

0 Comments
/
Join Host Joe Selvaggi and Virologist and Investor Dr. Peter Kolchinsky as they discuss the rapid development, efficacy, and rollout of the newly approved COVID-19 vaccines.

Knowledge is Power: Sir Francis Bacon and the Scientific Method – 10 Resources for High School Students

In Pioneer’s ongoing series of blogs here, on curricular resources for parents, families, and teachers during COVID-19, this one focuses on: Celebrating the 400th Anniversary of Sir Francis Bacon and the scientific method.

Stanford’s Prof. Caroline Hoxby on Charter Schools, K-12 Ed Reform, & Global Competitiveness

0 Comments
/
This week on “The Learning Curve,” Cara and Gerard are joined by Caroline Hoxby, the Scott and Donya Bommer Professor of Economics at Stanford University and a Senior Fellow of the Hoover Institution.

The 400th Anniversary of the Mayflower – 15 Resources for K-12 Students

In Pioneer’s ongoing series of blogs on curricular resources for parents, families, and teachers during COVID-19, this one focuses on: Celebrating the 400th Anniversary of the Mayflower’s voyage.

SABIS® President Carl Bistany on International Education, Charter Public Schools, & At-Risk Students

0 Comments
/
This week on “The Learning Curve,” Cara and Gerard are joined by Carl Bistany, the president of SABIS® Educational Systems, an education company founded over 130 years ago that serves young women in the Middle East, and poor and minority students in the U.S.

MBTA Cuts Ahead: COVID Causes Commuters To Consider Comprehensive Changes

0 Comments
/
Host Joe Selvaggi and Pioneer Institute Senior Fellow Charlie Chieppo discuss the reasons for the recently proposed cuts to MBTA service, and offer suggestions as to how the agency’s leadership could use this crisis to improve the service’s long-term health.

Pioneer Report Spotlights Decade-long Building Boom in Massachusetts Construction Industry

In the lead-up to the COVID-19 crisis, the Massachusetts construction industry enjoyed a boom in select subsectors, though employment numbers had yet to recover from the setbacks of the Great Recession, according to a new report from Pioneer Institute that draws data from the MassEconomix web tool.

Contracting with private providers could avert MBTA cuts

0 Comments
/
In response to a collapse in MBTA service in the winter of 2015, the newly formed Fiscal and Management Control Board (FMCB) set the authority on a course of bold reforms. The COVID-19 pandemic is once again presenting new and significant challenges to T leadership that require a rethinking of how service is delivered to stave off painful service cuts.

Pioneer Institute Statement on MBTA Service Cuts

Even as MBTA ridership and revenue have been gutted by the COVID-19 pandemic, the system remains a lifeline for so many residents in the Greater Boston area, especially those working in essential services like health care or in industries most impacted by the pandemic such as the restaurant sector.  Facing a crisis of this magnitude, T leadership must first do its all to rethink how it delivers services before reflexively making cuts.

Pioneer Checklist Includes Steps for Policy Makers, Business Owners to Revitalize Hardest-Hit Industries

Combining the recommendations of studies published earlier this year, Pioneer Institute has released “A Checklist for How to Revitalize the Industries Hit Hardest by COVID-19.” The recommendations for policy makers are organized in three sections: Immediate Relief, Tax Policy Changes and Permanent Reforms.  Business owner recommendations are split into COVID-19 Health and Safety Protocols, Expanded Services and Steps to Improve Cash Flow.

Capturing Voter Intent: What Polling Error Teaches Us About Electoral Trends

0 Comments
/
Join Host Joe Selvaggi and Harvard Professor Chase Harrison as they discuss polling methodology and what errors in 2020 reveal about voting during COVID-19 and changing attitudes toward pollsters.

Pioneer Report Highlights Pre-Pandemic Employment Growth in Massachusetts’ Hospitality & Food Industry

In the lead-up to the COVID-19 crisis, the Massachusetts Hospitality and Food Industry enjoyed generally positive employment growth, according to a new report from Pioneer Institute that draws data from the MassEconomix web tool. Most of the Hospitality and Food Industry employment across the state is concentrated in full-service restaurants and hotels.