The Sales Tax Tussle: Ballot Measure Pits Public vs. Private Spending

by Kevin Casey on October 25, 2010
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If you don’t do business in Massachusetts — or in a neighboring state — then you’ve probably not paid much attention to the upcoming election there. You might want to start.

When Massachusetts voters hit the polls on Nov. 2, they’ll weigh in on Question 3, which proposes to slash the state’s sales tax from 6.25% to 3%. If the measure passes, consumers would certainly save money at retail checkout. Proponents say the cut would create jobs and stimulate new business investment. At least one independent analysis supports the claim.

Retail businesses, particularly those that sell big-ticket items like the small jewelry store featured here, stand to benefit. The tax cut would amount to a statewide coupon to entice shoppers, one with no expiration date and no direct costs to business owners.

But those opposing the proposal — including powerful unions and all four gubernatorial candidates — bemoan the $2 billion-plus the rollback would strip from the state’s revenues, and say that critical public services such as safety and education would be in jeopardy.

In a basic sense, the measure forces competing bottom lines to duke it out in the voting booth, with business and consumer bank accounts squaring off against the state’s coffers.

Advocates say it’s time for state government to do what small businesses do every day: succeed with limited resources.  They also cite the need to keep Massachusetts consumers in Massachusetts. Neighboring New Hampshire has no sales tax, offering significant savings to shoppers who head across state lines. A 3% sales tax would also undercut higher rates charged by its other neighbors. Rhode Island, for example, tacks on 7% to cash register receipts, while Connecticut and Vermont each levy 6%.

Though the real-world impact of such a move would be open to interpretation, key stakeholder groups — government, business, consumer — would almost certainly follow the effects from well beyond Massachusetts’ borders. In an era when some brick-and-mortar businesses contend with online stores that offer the same products tax-free, the notion of sales tax as a competitive tool bears discussion.

State and local governments already compete for big business investment by offering corporate tax breaks and other incentives. And sales tax rates vary widely across the country, from zero in several states to around 10 percent in some California municipalities. Some states offer sales tax “holidays” to spur shoppers on specific days of the year.

Still, even if a sales tax rollback might make Massachusetts more attractive to shoppers and businesses, Question 3’s opponents assert that the corresponding cuts to public spending would devastate services and undermine economic recovery and growth.

The idiom is death and taxes — not death and sales taxes. Next week, Massachusetts voters will decide just how certain the latter are.

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