State Sales Tax

UPDATE

April, 2010. Political leaders are planning a major effort to defeat a ballot question this year that would slash the state's sales tax, saying it would mean devastating cuts in state and municipal services and programs. Two years ago, teacher unions and other opponents spent a near-record $7.3 million to help drum up votes against a ballot question that sought to abolish the state income tax. They are
expected to again spend heavily this year on an advertising campaign against the
proposed ballot question to cut the sales tax. [Full Article]

March, 2010. A state senator on Thursday highlighted the plight of the hungry in Massachusetts as he called for voters to reject efforts to slash the state sales tax in half and repeal the sales tax on alcohol, proposals he said would cut $2.4 billion out of the state tax base.  "Think about that in November," Sen. Stephen Brewer, vice chair of the Ways and Means Committee, told supporters of Massachusetts food banks at a State House rally.  Advocates for food banks say they need $15 million - $3.5 million more than proposed by Gov. Deval Patrick - next fiscal year to help feed 107,000 additional residents they expect to seek assistance. Overall, they say, 571,000 residents, about one of every 11 in the state, require food assistance. Brewer called the food banks' request "a measly three million bucks," compared with the amount that the ballot questions would cut from state coffers and deliver to consumers in the form of tax relief.

 

February, 2010. All four gubernatorial candidates endorsed cutting the state's 6.25 percent sales tax rate, positioning Gov. Deval Patrick as the only member of the field on record backing last year's 25-percent increase. Patrick, who preferred a gas tax hike and other targeted increases to the sales tax bump, ultimately signed the budget the Legislature sent him. Administration officials said Patrick would support restoring the 5 percent rate once revenues recover elsewhere.

February, 2010. Sales Tax - Gubernatorial Race. Mass. gubernatorial candidates weigh in on sales tax proposal. "You don't raise taxes in the middle of a recession. I think my main concern about the 3 percent on the sales tax piece is just the size of the issue that's involved. -billion dollars is what the rollback would cost the state at a time when the economy is still struggling from the recession" Charlie Baker said. "The question is not whether but when and at what level. I don't know about three percent but I think rolling it back is a great idea --- it's just the time is wrong." Governor Patrick said at the Somerville Democratic Caucus. [SHNS]

In fact, of the six declared candidates for governor only one - Republican Christy Mihos -- has endorsed the ballot question. [NECN]

May 19, 2009. The Senate voted in favor of adopting the 25% increase in the sales tax proposed by the House of Representatives. (Tally Sheet: 29-10)

May 13, 2009. The Senate Ways and Means FY10 Budget Recommendation did not include an increase in the sales tax.

May 1, 2009. The Massachusetts House of Representatives passed their version of the FY10 Budget that included a 25% increase in the Sales Tax, bringing the total up to 6.25% The amendment maintains existing sales tax exemptions, such as on food and clothing under $175. [More from MassBudget] The sales tax increase was approved by a veto-proof majority.

April 15, 2009. The House Ways and Means FY10 Budget Recommendation did not include an increase of the sales tax.

February 3, 2009.  Massachusetts has ordered a tire chain to charge Bay State residents a 5 percent sales tax on their purchases in New Hampshire in an unprecedented move that could have huge implications for consumers and other merchants. [More at Boston.com]

December 23, 2008. Members of a panel charged with recommending financing ideas for Governor Deval Patrick's education reform plans are considering a hike in the state's sales tax as part of a package that would also include cost-saving measures. A draft report obtained by State House News Service portrays the Readiness Finance Commission wrestling with the prospect of a tax increase and its possible impact on both public education and the state's economic competitiveness. The report noted that a majority of the commission agreed on the need for new revenues. [State House News Service] [More at Boston.com]

BACKGROUND

Massachusetts adopted a general sales tax in 1966, which was relatively later than most states in the U.S. Currently the Massachusetts sales tax is 6.25 percent on retail sales of tangible personal property in Massachusetts. Some consumer items are exempt from this tax follow: food, clothing (for purchases less than $75), prescription drugs and services. The sales tax generally is paid from the buyer to the vendor at the time of purchase; the vendor then remits the tax to the Commonwealth.

The sales tax tends to be a stable tax. While items purchased may decrease during an economic recession, this tax does not decrease as rapidly as income tax does because people generally need to buy food, clothing and shelter no matter their income.

General sales tax revenue in Massachusetts was equal to 1.4 percent of personal income in FY05. Only two states with a general sales tax collected less revenue as a share of personal income than the Commonwealth. 

In addition to the sales tax, Massachusetts has a “use tax” which is also 5 percent of the sales price or rental charge on tangible personal property. This includes mail order items, items purchased over the Internet or certain telecommunications services. This tax is paid and to be used, stored or consumed in the Commonwealth. The “use tax,” unlike the sales tax, generally is paid directly to the Commonwealth by the purchaser.

On Friday September 11th, 2009 Diane L. DiGiorgi wrote a guest column called "What the sales tax mean to you" where she explains how we pay the salex tax when we purchase certain products in Massachusetts. While Ms. DiGiorgi explains in an easy way how we pay the sales tax in this state the column lacks a piece about what this source of revenue pays for in our communities. 

For more background information see: Massachusetts Department of Revenue and Massachusetts Budget and Policy Center

SAMPLE ARGUMENTS

OPPOSING

  • New Hampshire imposes no sales tax, while Massachusetts has a 5 percent tax. Massachusetts businesses located within ten miles of the New Hampshire border have been trying to get the sales tax eliminated because their business suffers, especially when it comes to large-item purchases.
  • Sales tax is often not applied to items that are purchased over the internet. Therefore, local sellers are at a disadvantage since they must collect sales tax on their merchandise; they are forced to charge higher prices than their internet competition. 
  • According to The Institute on Taxation and Economic Policy, Massachusetts taxpayers in the lowest 20 percent of incomes pay 4.0 percent of their incomes in sales tax as compared to the wealthiest taxpayers paying less than 1.0 percent.
  • The sales tax is a regressive type of tax (especially compared with the corporate income tax or the personal income tax), because people with lower incomes pay a greater share of their incomes on sales tax than people with higher incomes. 

SUPPORTING

  • An increase in the sales tax would raise a substantial amount of revenue. An increase from 5 percent to 6 percent would generate an additional $750 million in revenue in FY 2003. This will fill in as much as one-third of the state’s budget deficit. 
  • An increase in the sales tax can be part of a progressive solution to the state’s fiscal crisis. While the sales tax falls more heavily on low- and moderate-income families, it is possible to craft a revenue package that includes the sales tax and that improves the progressivity of the Massachusetts tax structure at the same time. For example, including provisions such as the elimination of the capital gains loophole.
  • An increase in the sales tax would not cause a massive “run on the border.” Of the five states that border Massachusetts, only two have state and local sales tax rates that are less than 6 percent. New Hampshire does not levy a sales tax, while Vermont’s maximum state and local sales tax rate is 5 percent. An increase in the sales tax from 5 to 6 percent would result in a relatively small change in the net price of items on which the tax is levied and, thus, would not likely compel many more Massachusetts residents to race across the border in search of savings. 

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