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

Study: Officials Must Address Basic Questions to Improve Public School Computer Science Education

Even as the COVID-19 pandemic has further transitioned education towards electronic devices, computer science education in K-12 public schools around the country faces a number of daunting challenges, according to a new study published by Pioneer Institute.

Hubwonk Ep. 7: Covid Testing: What went wrong, where we are & when we’ll get closer to normalcy

0 Comments
/
https://www.podtrac.com/pts/redirect.mp3/chtbl.com/track/G45992/feeds.soundcloud.com/stream/828394294-pioneerinstitute-hubwonk-ep-7-covid-testing-what-went-wrong-where-we-are-when-well-get-closer-to-normalcy.mp3 Join…

As stay-at-home orders remain in place at the start of summer tourist season, COVID-19 takes a bite out of resort towns’ economies

0 Comments
/
Last month, Pioneer Institute showed that the hospitality and…

Survey Suggests Demand for Telecommuting After COVID-19 Crisis

Citing an avoidance of the commute and more flexible scheduling, nearly 63 percent of respondents to Pioneer Institute’s survey, “Will You Commute To Work When The COVID-19 Crisis Is Over?” expressed a preference to work from home one day a week, and a plurality preferred two to three days a week, even after a COVID-19 vaccine is available. Respondents cite social isolation as the biggest drawback of remote work. The survey was conducted from April 22nd to May 15th, and received responses from over 700 individuals.

It’s Time for the MBTA to Actively Engage Riders to Understand Their Commuting Plans

0 Comments
/
The MBTA should conduct a survey of mTicket app users regarding their future plans. Some may never work in offices again. Some will certainly do some workdays in the office and some at home. Others will be in offices and back to business as usual at some point. Using their responses, the T can calculate ridership and determine projected revenue.

Today’s Bureau of Labor Statistics estimate of a 15.1 percent unemployment rate in April only reflects half of Massachusetts’ COVID-19 unemployment surge

0 Comments
/
Today's release by the Bureau of Labor Statistics of a 15.1%…

Homeschooling Expert Kerry McDonald on Harvard Law Professor Controversy & COVID

0 Comments
/
This week on “The Learning Curve,” Cara and Gerard are happy to be joined by Kerry McDonald, a homeschooling expert and Senior Fellow at the Foundation for Economic Education, on the major lessons we all should be learning from this educational moment, now that COVID has turned most of America’s 50 million schoolchildren and their families into "homeschoolers."

32.9 percent of the Massachusetts workforce and 26.2 percent of the U.S. workforce have filed unemployment claims over the past nine weeks.

0 Comments
/
Data released today by the U.S. Department of the shows that 33.0 percent of the Massachusetts workforce and 26.2 percent of the U.S. workforce have filed unemployment claims since the COVID-19 unemployment surge began nine weeks ago.

Study Finds Pandemic Likely to Negatively Impact Biopharmaceutical Sector

Contrary to conventional wisdom that says the coronavirus pandemic will generally benefit biopharmaceutical companies, a new Pioneer Institute study finds many companies will emerge from the pandemic commercially weaker, dealing with delays in new product launches and with fewer resources to invest in research and development.

“Every Action has an Equal and Opposite Reaction”: 8 K-12 Science Resources During COVID-19

0 Comments
/
The fourth in Pioneer’s ongoing series of blogs on curricular resources for parents, families, and teachers during COVID-19 focuses on science education.

COVID-19 Roundup from Pioneer: The race for a vaccine; Unemployment Tracker; Reopening reactions; Grading BPS on remote learning; Holyoke Soldiers’ Home understaffing; & more!

0 Comments
/
Pioneer staff share their top picks for COVID-19 stories highlighting useful resources, best practices, and questions we should be asking our public and private sector leaders.

In The Era Of COVID-19, Mass. Needs To Get Long-Term Care Right

0 Comments
/
This op-ed originally appeared in WGBH News. In much of the…