You Can Pay Your Customers' Sales Tax; You Just Can't Talk About It

Every year from 2003 through 2008, The Boston Globe reports, Massachusetts shoppers have enjoyed "the annual summer rite of a sales-tax holiday." This year the state canceled the holiday even as it raised the sales tax from 5 percent to 6.25 percent. Many retailers responded by announcing that they would pay their customers' sales tax, but it turns out they're not allowed to do that. Under a heretofore obscure statutory provision, "it is unlawful for any vendor to advertise or hold out or state to the public or any customer, directly or indirectly, that the [sales] tax or any part thereof will be assumed or absorbed by the vendor.'' State Rep. John Quinn (D-Dartmouth) proposed a bill that would have lifted this prohibition, but it was blocked by legislative leaders who worried that a privately funded sales tax holiday would give large businesses an unfair advantage:

In an e-mailed statement, [state Rep. Jay Kaufman (D-Lexington), chairman of the Revenue Committee,] said the bill, "while laudable in its attempt to stimulate retail sales, concerns me because it could disproportionately favor big business retailers over small business 'Mom & Pop' stores. These big-box retailers have the balance sheets to absorb the tax, which small business retailers do not. In this economy, this is hardly the time to put small businesses at such a distinct disadvantage."

Whatever the merits of such protectionist logic, it's hard to see how this law can be reconciled with the First Amendment. Note that it's perfectly legal for businesses to pay their customers' sales tax; they just can't talk about it. Under the relevant Supreme Court precedents, "commercial speech" can be censored only if it's misleading or if it directly advances a substantial government interest and is narrowly tailored to do so. The ads in this case are straightforwardly accurate, and I'm hard pressed to think of any legitimate government interest that is served by suppressing them.

[Thanks to Michael Graham for the tip.]

Comments

[Tomcat1066]

But it's Massachusetts. The Bill of Rights has no effect within their borders.

[Pro Libertate]

First rule about Tax Club is. . . .

[Warty]

Fuck yourself, joe.

[Doctor Duck]

Likewise, the numerous collision and auto glass shops who will "waive your deductible".

I imagine the insurance companies forbid that by contract, yet there's no shortage of shops advertising it. So it must be simply a disguised discount offer that appeals to peoples' dislike of insurance companies.

FWIW, at least in Michigan, we see televised offers all the time from furniture and carpet retailers that claim "...we pay your sales tax!" I think everyone recognizes it as just a marketer's substitute for "6% discount".

[Sales tax fan!!!]

I don't want anyone payin' my sales tax for me! Save their stinkin' charity for someone else. Paying sales tax makes me feel so patriotic!

Damn these businesses for robbin' us little guys of our chance to contribute to the general welfare!

[Tulpa]

Back when I was in NYS, retailers would say they were cutting prices by 8%, so that it was "like not paying sales tax" (which of course is not accurate, as 0.92 != 1/1.08)

[Rich]

Note that it's perfectly legal for businesses to pay their customers' sales tax; they just can't talk about it.

If the vendor "just does it", isn't that "stating indirectly"? Seems like a gotcha. 8-(

[Tulpa]

Also note that by the time any of these businesses can file a suit and go through the appeals process, it will be moot because the summer will be over.

[Nick]

Yeah, cuz allowing Massachusetts businesses to compete with no tax New Hampshire is just wicked retahded!

[chicken shit for the soul]

You can pick your friends, or you can pick your nose. But you can't pick your friend's nose!

[PR]

I'll bet a lot of people think their employer pays half of the payroll tax too.

[Gunboat Diplomacy]

If an employer can gross-up a bonus, then why can't a retailer gross-up a purchase?

[J Mann]

How does the ban work?

Can I run an ad that says "Are bummed out about MA cancelling no sales tax weekend? Although we are legally required to collect sales tax and will do so, Mann's widget emporium will be slashing all prices 6.5% this weekend only!"

[NaturalLawGunNut]

"These big-box retailers have the balance sheets to absorb the tax, which small business retailers do not. In this economy, this is hardly the time to put small businesses at such a distinct disadvantage."

That's got to be the stupidest statement I've read all day. Amazing they cannot see the same disparity created by the taxation in the first place.

[Zeb]

"Yeah, cuz allowing Massachusetts businesses to compete with no tax New Hampshire is just wicked retahded!"

No, they would rather try to coerce New Hampshire businesses into collecting taxes for them (this is actually currently happening with some tire places near the Mass border).

[John-David]

Tulpa,

If the sales tax was 8%, and the retailer cut prices by eight percent, the customer would end up paying $.9936 on every dollar. Sounds like a better than advertised deal for the customer.

Unless I've made a massive math fail.

[plutosdad]

Huh? It seems to me most big box retailers are low margin businesses, except for electronics. That's why they have to be high volume. In fact high volume and high margin rarely go together.

[Mike Laursen]

How utterly ridiculous. The retailer ALWAYS pays your sales tax. Kaufman's not bright enough to realize that "We pay the sales tax!" is equivalent to "Everything 6.25% off sale!"?

[Brandybuck]

Conservative: "If you raise taxes the retailer will just pass it on to the consumer"

Liberal: "The retailer MUST pass it on to the consumer, dammit!"

[Bill]

It's not an "obscure" or unknown provision. I practiced state and local tax law for several years, and it is a common and well-known feature of state sales tax laws that retailers may not advertise that they will absorb or otherwise pay the sales tax. The tax is an obligation of the buyer, and the retailer collects the tax as an agent for the state. The retailer must collect the tax and (typically in most states) must file a monthly sales tax return remitting to the state the tax it has collected.

As far as reconciling it with the First Amendment, it has to do with collecting a tax. Seems to me the court has never had too much of a problem allowing such things when it has to do with imposing and collecting a tax.

[Seitz]

Can I run an ad that says "Are bummed out about MA cancelling no sales tax weekend? Although we are legally required to collect sales tax and will do so, Mann's widget emporium will be slashing all prices 6.5% this weekend only!"

Yes. This is really just form over substance. Although the sales tax is imposed on a vendor's gross receipts, and the vendor is responsible for remitting the sales tax to the state, the vendor must add the tax to the sales price charged the purchaser.

Why do states require this? Because they want to be able to audit people on their purchases (use tax) as well as their sales. If you buy something in Massachusetts and aren't charged sales tax, you owe the complementary use tax.

Now, in practice, this doesn't mean much to you or me, because we aren't going to get audited. So you're probably safe if you don't tell the state about all that stuff you bought from Amazon without paying tax. The administrative burden of going after you isn't worth it. But if you're, say, a large company, you're probably going to get audited at some point, and if you're selling stuff, you're going to get audited for sales tax AND use tax.

The upshot is that the state doesn't want to have to deal with companies saying "you can't assess use tax on those purchases because the vendor told me he had it covered". Standardization eases the state's administrative burden.

[Seitz]

The tax is an obligation of the buyer, and the retailer collects the tax as an agent for the state. The retailer must collect the tax and (typically in most states) must file a monthly sales tax return remitting to the state the tax it has collected.

Just to be overly pedantic, in MA, the tax is actually on the retailer, though in many states Bill is right. In most states in which the incidence of the tax is on the purchaser, the state actually compensates retailer for collecting and remitting on time.

As for returns, they're either monthly, quarterly, or annual depending on the amount of activity. And by far the worst thing a retailer can do (in a legal sense) is collect and not remit. If you don't collect at all, you can get in some trouble, but if you do collect and don't turn it over, you're fucked.

[Keep the tax money!!!]

Maybe the retailer could charge the customer sales tax, but then, not send the collected money to the State Treasury.

The business owner could say, "I need 'dis money for more important projects right here, right now."

Collecting money for one purpose but using it for another might get the businessman thrown in the joint. Collecting "Social Security" and using it to hide even greater deficits is good politics in Washington.

[Tulpa]

If the sales tax was 8%, and the retailer cut prices by eight percent, the customer would end up paying $.9936 on every dollar. Sounds like a better than advertised deal for the customer.

Yeah, that's right, it is actually better than not paying sales tax. I was just taking a shot at their claim that it was "like" not paying sales tax.

[Doctor Duck]

in MA, the tax is actually on the retailer

Does that mean that in MA, the purchaser doesn't owe use tax on out-of-state buys?

[Seitz]

Does that mean that in MA, the purchaser doesn't owe use tax on out-of-state buys?

No, it doesn't mean that. It means the purchaser doesn't owe "sales" tax on out of state buys. The use tax is a separate, yet complementary tax. In other words, you don't have to pay use tax on something that was already subject to the sales tax.

Note that many states say that you don't owe use tax on purchases on which sales tax was "properly paid". You still owe use tax when sales tax is "improperly paid". In other words, if you live in Mass and buy something from a Texas retailer with no Mass nexus, and that guy charges you Texas sales, you still owe Mass use tax. If you get audited by Mass, the fact that you paid Texas sales tax is no defense. The auditor will tell you that you owe the use tax, and you're free to call the vendor up and ask for a refund of the sales tax that you paid.

I've actually had to do that for clients that were audited. We couldn't avoid local Colorado tax, but we got a refund for the Texas tax they paid in error.

[Robert]

But then there are the provisions that forbid the seller from itemizing taxes on the buyer's bill. That's how cable TV franchise proposals were. The city wanted to hide the taxes from most people.

[Less Government]

A sales tax holiday is not even "laudable" -- the government should not be in the business of stimulating retail sales.

The purpose of government should be very succint and extremely limited in its power.

[zack]

Why shop (or live) in Massachusetts anyway?

I probably just broke yet another Massachusetts law by saying that.

[the tax club]

Not proffesional when they do not pass on the sales tax