Massachusetts' most-unfair tax

I was driving up to New Hampshire to do some Father's Day shopping at BJ's in Nashua. We make the trip every couple of months to stock up on staples. And as I was driving, I began thinking about a Massachusetts tax "policy" that is just wrong. It is the concept that Massachusetts residents who purchase taxable goods in other states are supposed to pay the sales tax to Massachusetts at some point on their return.

I believe states have no right to impose such a tax, and that citizens' willingness to accept the government's authority to do so is an example of the breakdown of citizens' rights and also an example of the "slippery slope" argument as to why we need to draw a firm line between individual freedoms and government oversight.

In preparation for this article, I did a little Internet research and have found what appears to be the justification for this tax. They call it a "use tax" and here is the verbiage from the state's website:

What is the use tax?

The Massachusetts use tax is 6.25 percent of the sales price or rental charge on tangible personal property 1 (including phone and mail order items or items purchased over the Internet) or certain telecommunications services 2 on which no sales tax, or a sales tax rate less than the 6.25 percent Massachusetts rate, was paid and which is to be used, stored or consumed in the Commonwealth. The use tax, unlike the sales tax, generally is paid directly to the Commonwealth by the purchaser.

Example: You purchase furniture for your Massachusetts business or residence from an out-of-state firm and pay no Massachusetts sales tax. You're required to pay the 6.25 percent Massachusetts use tax. The use tax applies because the furniture wasn't subject to a sales tax in the other state and because it's for use in the Commonwealth.


Source: http://www.mass.gov/dor/individuals/taxpayer-help-and-resources/tax-guides/salesuse-tax-guide.html#questions

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Under this tax theory, the Commonwealth attempted in court to force Town Fair Tire, a regional tire retailer, to collect "sales taxes" (or perhaps they called them "use taxes") to Massachusetts customers purchasing Town Fair tires in New Hampshire.

New Hampshire said forget it, that the power to assess taxes stopped at the border, and Massachusetts eventually lost the court case. (If you'd like to read a news article on this interesting test case, see: http://www.metrowestdailynews.com/article/20090826/NEWS/308269880

But think about how this theory works: If you live in Massachusetts, the state believes it has the power to tax you personally..not just your income or your in-state purchases, but whenever you "use" something in the state that was purchased outside and for which you didn't pay a sales tax.

WHY THIS TAX IS UNFAIR

I do not dispute the underlying necessity to collect taxes. But the state is an ever-hungry monster that is always looking to increase its "revenue." If left up to the taxing authority, every judgment call it would make would favor increasing revenues, of course.

Furthermore, we know that the "high level" taxes that are paid are transparent. If politicians want to raise the sales tax from 5% to 6.25%, which they did several years ago, then people can express their disagreement by voting for new elected officials.

But by raising taxes outside of the public's gaze, politicians can increase revenue without having to publicly defend their decision. I'll bet that a huge percentage of "revenues" are raised in these ways, at all levels of government. For example, what happens when the government finds a business (or an industry) guilty of some type of public corruption and levels a substantial fine? Does that money reduce what taxpayers owe, or is it instead sucked into the government revenue stream, to be spent on whatever pet projects our leaders favor, without the need to publicly raise taxes?

So the reason this tax is unfair is that it is not rebated to New Hampshire residents who visit Massachusetts and purchase taxable items. For the tax to be fair, NH residents should either be able to show their NH ID card and avoid paying the tax, or should be able to file a rebate for all such taxes paid and get a refund check from the Commonwealth. But you don't see that happening, of course.

I can understand an income tax. If you live in a state and earn income, you pay a tax on that income, no matter where you get the income from. The state would not be able to raise any significant revenue if it allowed people to avoid paying income taxes just by working for a firm based out-of-state. If you want to avoid Massachusetts income tax, you need to live outside the state.

Charging MA income taxes on NH residents who work in MA is likewise questionable. However, companies can get around this by setting up a subsidy in NH and employing NH residents there.

Charging sales taxes is also justifiable, even if I think it is bad policy. But that must be charged by retailers offering their goods for sale. They are essentially acting as "agents of the state" in collecting those taxes and if they collect them on everyone, that is fair.

If NH residents are willing to come to MA and pay higher prices (because of the tax) then that is up to them. I'm sure there are few NH residents who routinely do their shopping for taxable goods in MA.

But what Massachusetts is attempting to do is have it both ways. It wants to charge anyone purchasing stuff in the state a sales tax, and then charge residents the same tax when they go out-of-state to make purchases. The "tax collectors" can't do both nor should we allow them to do so.

I'm very sure that the Commonwealth collects enough revenue to pay for the things we need to do as a state, but if our elected representatives disagree, and voters want to keep re-electing them to keep raising taxes, that is up to our citizens. But these backdoor methods of raising revenue without accountability are terrible policy and set precedents that will be used for other future terrible policies, all in the name of helping politicians from making their actions and decisions transparent to voters.

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