The pandemic has spurred on a number of sales tax changes over the last 10 months, many of them in regards to economic nexus or other Wayfair-related legislation. However, in Massachusetts, lawmakers are looking at sales tax remittance instead. More specifically, speeding up the remittance process.
This doesn’t come as a huge surprise as Massachusetts Governor Charlie Baker has introduced a number of similar plans since taking office in 2015, but this is the first one that may be approved.
Like many other states, sales tax in Massachusetts is collected over the course of a month and then remitted to the state during the following month, usually towards the end. This means that it can take upwards of 50 days for tax revenue to be available to states.
In a time when many states are facing steep budget deficits, it’s not surprising lawmakers would push to get sales tax monies into state hands as fast as possible.
Gov. Baker’s plan was introduced in the governor’s revised Fiscal Year 2021 (FY21) budget recommendation. If approved, it would be implemented in several phases and would initially only apply to approx. 5 percent of Massachusetts businesses, according to the budget executive summary.
In phase one, which would begin in FY21, impacted businesses would be required to facilitate sales tax remittance from the first three weeks of each month during the final week of that same month. The taxes from the final week would carry over into the next month. Reconciliation of the filing would be due the following month.
This first phase would last three years and the funds would go towards mitigating the economic impacts of the pandemic, the Massachusetts Bay Transportation Authority and the Massachusetts School Building Authority.
The second phase, which would begin in 2024, would require all retailers and credit card processors to capture sales tax at the time of purchase. The tax collected would be remitted daily.
While Gov. Baker’s plan is ambitious, and there are certainly opponents of it, we are anticipating some form of phase one to be approved. States are eager to gain access to sales tax funds faster, and the pandemic has only increased this desire. We’ve also seen lawmakers in other states push similar proposals regarding sales tax remittance, and should Gov. Baker’s plan be approved, it’s likely other states will follow suit.
That said, phase two, which would require same day remittance, is a harder sell. Opponents have raised concerns regarding the need for expensive overhauls to payment systems and the possibility that phase two of the plan could increase economic barriers for new small business owners, among other potential concerns.
We’ll keep a close eye on this situation as it develops and will be sharing updates as we see them come through.
If you have questions regarding your obligations regarding sales tax remittance, or any other state sales tax compliance questions, please contact us today. We’re happy to clarify any multi-state tax issues you’re trying to navigate.
