Local Mayors Urge Patrick to Force Amazon to Collect State Sales Tax

It's only fair — that's the argument from advocates behind an effort to get giant online retailers, such as Amazon.com or Overstock.com, to collect the 6.25 percent state sales tax on purchases by Massachusetts customers.

The Massachusetts Main Street Fairness Coalition (MMSFC), an organization made up of retailers, local elected officials, labor unions, trade and business associations and individuals, says these online retailers are exploiting a legal loophole that allows them to not charge sales taxes unless they have a physical presence in that particular state.

It's a "huge advantage" local brick-and-mortar businesses — the "lifeblood" of cities and towns — can't compete with, the coalition argues.

The coalition is led by Salem Mayor Kim Driscoll as co-chairperson and counts among its supporters retail giants such as Best Buy and Walmart, along with numerous individual small businesses.

Driscoll pledged her support to the effort this spring, saying it will help local businesses stay competitive and therefore benefit cities and towns across the state. Not long after, Peabody Mayor Ted Bettencourt joined the effort as well.

“We have to level the playing field for local businesses,” said Bettencourt at the time. “Closing this loophole will help smaller retailers be more competitive, which will spur economic development in downtown Peabody and in cities and towns across Massachusetts.”

Now, Driscoll, Bettencourt and six other mayors are asking Gov. Deval Patrick to take "aggressive" action with Amazon.com in particular — it recently established a physical presence in Massachusetts — and tried to force the company into compliance with state sales tax laws before the holiday shopping season arrives.

According to the coalition's estimates, Massachusetts could net an additional $25 million to $45 million from Amazon alone if the company starts collecting sales tax.

“We have read the news reports that you are in contact with Amazon and have plans to discuss this matter with them. We applaud you for your leadership and urge you to move aggressively this fall so that Amazon is in full compliance with Massachusetts tax laws by the time the all important Christmas shopping season begins,” reads a letter to Patrick signed by eight mayors last week.

In addition to Driscoll and Bettencourt, mayors Tom Menino (Boston), Joseph Sullivan (Braintree), Michael Tautznik (Easthampton), Gary Christenson (Malden), Stephen Zanni (Methuen) and Daniel Rizzo (Revere) all signed the letter.

MMSFC notes that earlier this year, Amazon purchased a robotics company in North Reading and opened a research office in Cambridge, which therefore establishes a physical presence in-state for Amazon and requires the company to comply with sales tax laws.

Nevada and New Jersey recently announced that Amazon will begin collecting state sales taxes after locating operations in those states and being pressed by governors and other state leaders, says the MMSFC. The company began doing the same in Texas in July and in California and Pennsylvania earlier this month. More than a dozen states in total have reached agreements with Amazon.

The MMSFC notes that many "brick-and-mortar" businesses in Massachusetts do a large amount of sales online as well, yet they don't avoid collecting sales taxes from those customers and neither should online-only retailers.

The MMSFC says that a previous letter on this issue dated May 31 to state Department of Revenue Commissioner Amy Pitter has so far gone unanswered.

The State House News Service reports that Patrick spoke positively about tax agreements with Amazon back in June, saying his administration would begin those talks, but as of last week, it appeared only minimal progress had been made.

Patrick said only his staff has spoken with Amazon officials to date and otherwise offered scant details on the negotiations.

Back to the loophole

The MMFSC says large e-commerce companies hide behind a 1992 U.S. Supreme Court ruling, Quill v. North Dakota, which prohibits states from requiring retailers without a physical presence in the state to collect sales tax on their behalf.

"At the time of that decision, the Internet was in its infancy, and companies such as Amazon did not exist," argues the coalition. "Clearly, times have changed, and our antiquated system is in need of a modern-day overhaul."

According to the Alliance for Main Street Fairness, the Bay State has lost out on $600 million in sales tax revenue from e-commerce since 2007.

"We understand that the ultimate solution to this problem rests with the federal government and we hope, in time, it acts appropriately to correct this imbalance. But Congress is not going to act unless pushed, and Massachusetts -- like we have on healthcare reform and many other issues in the past – can once again demonstrate national leadership on this vital issue," the mayors wrote to Patrick.

They say individual states can try and simplify state tax codes, facilitate collecting sales taxes and eliminate any loopholes they can that are being exploited by remote e-commerce companies. In Massachusetts, for example, the legislature is looking at the Streamlined Sales Tax project.

For more information from MMSFC, visit www.massmainstreet.com.