Patrick wants Net sales tax created

Mass. coffers would gain $15m per year

Governor Deval Patrick is pushing lawmakers to expand the state's ability to collect sales tax on products sold over the Internet, which could add millions of dollars in revenue each year and alleviate a severe budget crisis.

Patrick's revenue commissioner, Navjeet K. Bal, has submitted a report to the Legislature asking it to approve an Internet sales tax by the end of this year. Currently, only Internet retailers that have in-state locations, such as stores and warehouses, collect and remit sales taxes on purchases by Massachusetts residents.

The proposed law would expand that to collect taxes from Internet retailers that have agreed to participate in a multistate compact, called the streamlined sales tax initiative. Because participation is voluntarily, Massachusetts officials estimate the state would collect only an additional $15 million in taxes a year.

Still, state officials said passage of the law would help spur Congress to approve a broader version of an Internet sales tax that could produce hundreds of millions of dollars in additional revenue.

So far, 22 states have adopted Internet, phone, and mail-order sales taxes based on the streamlined sales tax sys tem.

Legislation by Congress would require all 45 states that have sales taxes to collect on those transactions. Because it would be a federal mandate, the law would dramatically increase the number of retailers required to participate, generating as much as $545 million for Massachusetts alone, according to an analysis by the University of Tennessee.

The US House version of the bill is sponsored by Representative William Delahunt, Democrat from Quincy, who has argued that implementing the tax agreement is more about creating a fair tax policy than raising revenue.

"This will protect Massachusetts businesses that are disadvantaged by the current system," Delahunt said. "Small- and medium-sized businesses need this in order to compete with large sellers from out of state" that aren't required to collect and remit sales taxes.

But opponents argue such a tax would unfairly burden Internet retailers with the cost and complication of setting up systems to collect the tax and expose them to audits if tax collectors argue they did not collect enough.

"Why in the world would you think increasing taxes on people buying stuff would help the economy?" said Grover Norquist, president of Americans for Tax Reform. "It won't do anything other than throw sand in the gears of commerce."

In Massachusetts, the tax proposal appears to enjoy broad support in the Legislature, where members are grappling with anticipated budget cuts that could reduce local aid to communities, hurting schools and cutting public safety services. A special corporate tax committee that studied the issue voted 14 to 1 in 2007 to support its implementation here.

Even the one lawmaker on the committee who voted against it, Brad Jones, a North Reading Republican, now sounds more supportive. Jones said an Internet sales tax would be a far better option for the state than an across-the-board tax increase. He noted that taxing Internet sales is technically not a tax increase, because consumers are currently required under a seldom-enforced law to pay tax directly to the state on those items they've purchased from out-of-state vendors.

"There are some questions that need to be vetted and explored, but this is something that is deserving of consideration," Jones said.

Some of those questions include whether the state can reconcile conflicts in its tax code with the system being developed by the streamlined project. For example, the current system does not allow states to use price thresholds when taxing certain categories of products, but Massachusetts only taxes clothes that cost more than $175.

Last month the members of the multistate organization gave preliminary approval to allowing the Massachusetts clothing threshold. A final vote is expected within months.

Casey Ross can be reached at cross@globe.com.