Added costs associated with the Baker administration’s “real time” sales tax legislation would add a new burden on Massachusetts retailers struggling to emerge from the COVID crisis, according to the group that represents the industry in Massachusetts, business advocates say.

In January, Gov. Charlie Baker filed his annual state budget proposal, which again included proposed changes to the commonwealth’s sales tax collection and remittance process. The proposal calls for third-party payment processors – banks, credit card companies and card processors – to take over the task of remitting sales tax from the state’s retailers, and to remit to the commonwealth, on a daily basis, the sales tax from all credit and debit card transactions. Commonly referred to as “real-time” sales tax, or daily remittance, retailers, banks, card companies and almost everyone involved in the payment industry strongly oppose this proposal. 

Today, a retailer makes a sale and the retailer alone is responsible for collecting and remitting the tax on that sale. This proposal would bifurcate the process and make it more complicated, requiring the remittance of sales tax from credit and debit card transactions to be remitted by the processors, while the retailer would still be responsible for remitting the sales tax from all other transactions – cash, check, gift card, and split-tender transactions. Splitting one process into two does not sound like progress, nor “modernization” as it has been described. 

Retailers, credit card companies, processors and the state itself would incur costs estimated in the billions in new expenses to build out and maintain a new system – costs that would be passed onto consumers and taxpayers – in a process that, if even possible at all, would take many years to implement according to a 2017 report by the State Tax Research Institute. New software, new hardware, and all new terminals to replace the new chip terminals we just got!     

Meanwhile, under the Baker proposal the existing system will remain for cash, check, gift cards, etc. Ironically, it is universally understood that any sales tax fraud in the system only occurs in cash transactions. Credit and debit card transactions are all recorded and information is available for review. There is little to no sales tax fraud in credit and debit card transactions. Yet this is a proposal, supposedly to address fraud, that only deals with credit and debit transactions.    

New Processing Costs an Added Burden 

Consumers today enjoy the benefits of generous retail return policies, and they take full advantage of them. Return volumes are at record highs. Sales tax remitted to the state daily would need to be returned by the state daily – something that doesn’t happen today. With data that shows that 8 percent of purchases are returned, and return rates of 30 percent or more for online purchases, does anyone have confidence that the state can properly do this? 

And what about the fees? Who will pay for the added processing costs? Retailers have served as the state’s tax collectors since 1966 and they receive no compensation for providing that service.  Meanwhile, 28 out of the 45 states that have a sales tax do compensate their sales tax collectors – retailers and restaurants – via some form of a vendor discount or collection allowance. Now we’re proposing to mandate that they pay a third-party processor to remit sales tax on their behalf for a significant portion of their sales.  

Bill Rennie

I think we can all agree that it does not sound like a good idea to insert a third-party, profit based company, in between the retailer and the government, when it is ultimately the retailer who bears the tax liability. Certainly, retailers universally agree. 

At least we should look to see how daily remittance has performed in other states, or other taxing jurisdictions. So how has it worked elsewhere?  It hasn’t. The system doesn’t exist. Daily remittance by processors doesn’t exist in practice in any form in any state or municipality in the country. It has been universally rejected. The bipartisan National Conference of State Legislatures looked at it in 2014 and concluded that “real-time sales tax process is not a solution.” 

Daily remittance does not generate any new revenue. It does not create any new sales. And it would heavily burden our retailers and restaurants with increasing new costs – just when we know they can least afford it. 

Bill Rennie is vice president at the Retailers Association of Massachusetts.