There may be a major tax cut competing with the significant tax increase that’s already being prepared for the 2018 ballot in Massachusetts.
Retailers have conducted polling and are encouraged by results suggesting Massachusetts residents are receptive to reducing the state sales tax, which was raised to 6.25 percent from 5 percent during a 2009 push led by House Speaker Robert DeLeo.
“At this point all options are open,” Retailers Association of Massachusetts President Jon Hurst told the News Service. “The board will be considering options come May at our spring board meeting and we’re looking at what we can do.”
In 2010, the same year Massachusetts voters narrowly agreed to repeal a new sales tax on alcohol, voters rejected a ballot question – 57 percent to 43 percent – that would have pushed the overall sales tax rate down to 3 percent.
But the dynamics are different now.
Amid a prolonged economic recovery, Democrats on Beacon Hill are leading the push for a 2018 ballot vote on a constitutional amendment imposing a 4 percent surtax on household income above $1 million. The retail sector is exploring the possibility of adding a sales tax cut to the mix on next year’s ballot, which also includes elections for governor and U.S. Senate and could feature an initiative petition boosting the state’s minimum wage.
A poll conducted for the retailers association in November by Princeton Research Associates reminded respondents that the so-called millionaire’s tax may be headed for next year’s ballot. Seventy-nine percent of those respondents said they support reducing the sales tax to about 4 percent or 4.5 percent to make the tax system fairer and to support local retailers. In the poll, 66 percent said they believe the “proper sales tax range” for Massachusetts would between 4 percent and 4.5 percent.
Retailers feel public policy is stacked against them as the volume of sales transacted online, and largely tax-free, has soared in recent years, pulling buyers away from stores that have traditionally served as community anchors.
At the same time, brick-and-mortar retailers, after being hit with the 25 percent sales tax hike in 2009, have had to battle annually to secure even a two-day reprieve from the sales tax, a tax holiday that the Legislature decided not to grant last summer. And long-running efforts to enable states to collect sales taxes on out-of-state purchases have failed to date, with no breakthrough on that front in the foreseeable future.
“There’s just a lot of frustration,” Hurst said. “We’ve been talking about this for two decades.”
The income surtax could generate up to $2 billion a year in new revenue. The sales tax, the state’s second largest source of tax revenue behind the income tax, produced just over $6 billion in revenue for the state during fiscal 2016, the last full fiscal year. Fiscal 2016 income tax collections were $14.4 billion. Total tax collections for fiscal 2016 were $25.3 billion.
Karyn Polito, now the lieutenant governor but back then a state rep running for treasurer, said in 2010 that she would vote for the measure reducing the sales tax to 3 percent, while Republican candidate for governor Charlie Baker in 2010 suggested Question 3 went “too far.”
At the time, Polito said, “Beacon Hill, the way it operates, unless the people send a message saying that higher taxes is not acceptable they’ll never lower the tax. So Question 3, if it passes the Legislature can come in and get that sales tax back to 5 percent where it should be.”
Before dropping his call for broad-based tax cuts during his winning 2014 campaign, Baker in his 2010 run supported reducing the income and sales tax rates to 5 percent. During his 2014 campaign, Baker declined to take a no-new-taxes pledge but called his opponent’s’ refusal to rule out tax hikes and the idea of a graduated income tax “unimaginative and bad economic policies that will hurt Massachusetts families at a time when they can least afford it.”
Opponents of the income surtax proposal claim its passage would lead to further tax increases through a graduated income tax structure under which tax rates rise in lockstep with income levels. Republican lawmakers denounced the proposed income surtax last session, but were easily outvoted by Democrats who sent the measure on to the 2017-2018 session where a second favorable vote would ensure a ballot spot in 2018 for the constitutional amendment.
Initiative petitions, such as measures contemplated to reduce the sales tax or raise the minimum wage, require 10 voters to sign and submit language to the attorney general’s office by August 2, 2017. The attorney general would need to determine by September 6 whether proposals are eligible for the ballot. Once it is determined that questions are eligible, campaigns must then embark on long signature-gathering efforts required to ensure ballot access.
A sales tax cut was briefly on Beacon Hill’s radar in 2013 when former Gov. Deval Patrick proposed reducing the sales tax rate to 4.5 percent and repealing the exemption of candy and soda from the sales tax. Patrick included those proposals with a plan to raise the income tax rate to 6.25 percent, eliminate certain tax breaks, and boost the cigarette tax. On net, Patrick’s plan would have increased state revenues by $1.9 billion.
DeLeo and the Legislature opted for a plan that raised the gas tax 3 cents and tied it to inflation, increased tobacco taxes by $1 per pack and applied the sales tax to software services. Lawmakers revisited and repealed the software services tax and voters repealed the law indexing the gas tax to inflation.