Bill tasks DOR with prepping for taxes on online commerce

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BOSTON (STATE HOUSE) – Some Massachusetts lawmakers want state revenue officials to gear up to collect sales taxes on online purchases in case Congress passes a law that allows states to do so.

Whether Congress will act remains up in the air, lawmakers said Tuesday during a Revenue Committee hearing where they discussed national efforts to change federal tax laws around online purchases.

Under current 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. Traditional brick and mortar retailers have pushed for Congress to change the law for several years, arguing the loophole gives online retailers an unfair competitive advantage.

“There is virtually unanimous support for the sales and use tax to include online purchases, which every year consume a larger and larger portion of our purchases, and therefore compromise state revenue accordingly,” said Rep. Jay Kaufman (D-Lexington), co-chair of the Joint Committee on Revenue, testifying on his bill which has 21 co-sponsors.

Kaufman’s bill (H 2569) asks officials at the state Department of Revenue to determine which parts of the state tax code would need to be modified if Congress authorizes states to impose sales taxes on online purchases.

“The bill before us today simply would authorize DOR to get ready for that eventuality of Congress acting,” Kaufman said.

The Alliance for Main Street Fairness, a group of retailers and small business owners, says that taxing online purchases will create more than 20,000 new jobs in Massachusetts and billions of dollars in additional goods and services produced each year.

Kaufman estimates the state loses approximately $300 million each year in uncollected sales taxes from online purchases.

A 1992 Supreme Court decision, Quill Corp. v. North Dakota, established that a business must have a physical presence in a state for that state to require it to collect sales taxes. In the decision, the high court also stated that Congress could change the decision through legislation.

Last month, Supreme Court Justice Anthony Kennedy called on internet sales tax supporters to bring a case before the court so the 1992 Quill decision could be re-examined.

Kennedy wrote in his decision, “The Internet has caused far-reaching systemic and structural changes in the economy, and, indeed, in many other societal dimensions. Although online businesses may not have a physical presence in some States, the Web has, in many ways, brought the average American closer to most major retailers. A connection to a shopper’s favorite store is a click away – regardless of how close or far the nearest storefront. Today buyers have almost instant access to most retailers via cell phones, tablets, and laptops. As a result, a business may be present in a State in a meaningful way without that presence being physical in the traditional sense of the term.”

The Quill case was decided when online retailers were in their infancy, Kaufman said.

“The Supreme Court seems ready to act, states are ready to act, Congress seems to be stuck in action,” Kaufman said.

Amazon began collecting sales taxes from its Massachusetts customers in November 2013, after reaching an agreement with former Gov. Deval Patrick’s administration when the online retail giant purchased a robotics company in North Reading and opened a research center in Kendall Square, Cambridge. The business operations at the two sites differ from distribution facilities related to online retail that other states used to force agreements with Amazon.

But the Patrick administration successfully argued the company’s presence at the two sites established the “brick and mortar” nexus to force the online retailer to collect taxes from Massachusetts shoppers.

More than a dozen states, including New Jersey Pennsylvania, Texas, and Nevada, reached similar agreements with Amazon.

During Tuesday’s hearing, no one testified against Kaufman’s bill, but a representative of a Waltham company raised concerns that any online sales taxes exempt certain medical equipment.

Gloria Craven, a policy strategist who represents Fresenius Medical Care, which provides dialysis treatment, expressed concerns that dialysis equipment be exempted from online sales taxes. Dialysis equipment is currently exempt from the state’s sales tax.

Copyright 2015 State House News Service

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