What Sales Is - And What It Is Not

Bring sales tax collection into the 21st century

The dirty little secret of sales tax collection in this state is that large-scale businesses get to hold on to that revenue long enough to make quite a nice side-profit collecting interest on what they call the “float” — akin to what bookies call the “vigorish.”

The Baker administration, as part of its fiscal 2021 budget, has a two-step plan for getting that money — taxpayers’ money, after all ― into state coffers more rapidly. It makes all the sense in the world. But make no mistake, there will be the inevitable pushback, especially from big-box stores, which like things just as they are.

It’s not the first time the administration has made a push for more timely sales tax collections, but this year the revenue numbers it has attached to its proposal are impressive — hopefully too impressive for lawmakers to ignore.

Secretary of Administration and Finance Mike Heffernan called the current process “antiquated,” adding it allows vendors to hold on to those sales tax proceeds for as long as 50 days after they’ve been paid by consumers. Under Phase 1 of the plan, businesses with $100,000 or more in sales tax receipts or room occupancy or meals tax receipts would have to remit them to the state on a faster timeline. Proceeds for the first three weeks of the month would have to be remitted in that same month. The final week’s receipts would be collected in the following month.

Heffernan estimated the policy would apply to only 10 percent of the state’s businesses, but that those businesses generate 80 percent of the state’s sale tax receipts. Capturing that revenue earlier would provide some $317 million this year alone. The Baker budget allocates $40 million of that additional revenue for the MBTA.

Last year Senate Ways and Means budgeteers dismissed the idea as “one-time revenue” and took it off the table. In a year when the state ended with a $1.1 billion surplus, that wasn’t difficult to do. But this year, with both branches looking for sources of revenue to finance the state’s many transportation needs, the case is far more compelling.

That brings us to the Baker budget’s proposed Phase 2 — a system for retailers and credit card processors to capture sales taxes at the moment of purchase and remit them daily to the state. That provision, which would require changes in the way credit card processors (as opposed to individual vendors) deal with remittances, wouldn’t be implemented until fiscal 2023.

The change, which applies only to credit card purchases, would require processors to split those charges on a daily basis — sending the state its share daily.

“It will add revenue,” Heffernan said, “but I haven’t put a number on it.”

Others have. A 2019 report by Performance Economics in Somerville done for STAC Media, a private firm promoting the idea, put the annual figure at more than $700 million. It also noted that it would help prevent tax cheating — which national studies estimate ranges from 5 percent to 16 percent — while guarding against the state losing out entirely when a business goes bankrupt.

And the economists who did that study also noted that the daily data compiled would give the state a kind of early warning system on any potential economic slowdown.

Last year lawmakers gave the whole issue a good leaving alone. They couldn’t even agree on language to provide civil penalties for the sale or use of tax “zappers” — devices used to falsify the actual electronic records of tax receipts.

There is a good deal of wailing and gnashing of teeth this year on Beacon Hill about the need for new revenue. Collecting what is due to the state in a timely fashion is a good place to start.

Editorials represent the views of the Boston Globe Editorial Board. Follow us on Twitter at @GlobeOpinion.

Virus Prompts India Top Cotton Trader to Stop Sales to China

(Bloomberg) -- Kotak Commodity Services Pvt., one of India’s top cotton exporters, will stop selling new cargoes to China on concern the spread of coronavirus may force the top buyer of the fiber to close ports and banks.

The Mumbai-based company will look for new buyers of cotton in countries such as Bangladesh, Indonesia, Taiwan and Vietnam to make up for any possible shortfall in sales to China, Vinay Kotak, director of the company, said in an interview by phone on Tuesday.

“Let’s not panic today, but if the virus keeps spreading and is not controlled in the next 10 to 15 days then it will create a big problem for the cotton industry globally,” he said. “If banks and ports are shut, then it will be a force majeure.”

READ: China Death Toll Climbs to 132 as Cases Soar: Virus Update

Sellers in India have already shipped 600,000 to 700,000 bales of 170 kilograms each to Chinese buyers so far this season and of that, about 75% is in transit, he said. Exporters were expecting to ship another 300,000 bales to China by the end of February, but that may not happen if the virus keeps spreading, Kotak said.

© Bloomberg Falling Fibers

Any signs of disruption in cotton shipments to China could pressure prices that had been recovering from three-year lows. Though China is a huge cotton producer, it’s also the world’s biggest importer. It could also tighten supplies in China, where stockpiles have been declining after Beijing levied retaliatory tariffs on cotton from America, the No. 1 exporter of the commodity.

CONSTELLATION BRANDS, INC.

Read: Cotton Rally Stalls as Virus Stokes Lingering China Demand Fears

Nervousness surrounding the novel coronavirus outbreak in China has already impacted a raft of companies. Starbucks Corp. has closed more than half of its coffee shops in mainland China, while Toyota Motor Corp. is halting production in the country. Investors are now waiting to see what damage this will do on corporate earnings.

For India’s cotton optimists, the virus in China isn’t a major concern. The South Asian country’s exports are price competitive and finding new buyers won’t be hard, said Atul Ganatra, president of the Cotton Association of India.

“Our export target is easily achievable as we are still the cheapest in the world,” said Ganatra. India has shipped 2 million bales since the beginning of the marketing year in October and sales may reach 3.5 million bales by the end of March, he said.

Indian cotton is selling at 39,500 rupees to 40,000 rupees ($561) per candy (785 pounds) compared with the free-on-board price of 46,000 rupees in the U.S., according to Ganatra.

India’s cotton production may climb to 35.45 million bales in 2019-20, from 31.2 million bales a year earlier, according to the association on Jan. 6. Exports are likely unchanged at 4.2 million bales, it said.

(Updates to add industry official comment in seventh and eight paragraphs)

To contact the reporter on this story: Pratik Parija in New Delhi at pparija@bloomberg.net

To contact the editors responsible for this story: Anna Kitanaka at akitanaka@bloomberg.net, Atul Prakash

For more articles like this, please visit us at bloomberg.com

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Salad Chain Sweetgreen Is a Digital Innovation Leader. What Chipotle and Wingstop Could Learn.

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Sweetgreen can offer lessons for other restaurant chains, Gordon Haskett says. Photograph by Adam Glanzman/Bloomberg

Salad chain Sweetgreen is a prescient leader in using digital strategies for the restaurant sector, according to Gordon Haskett.

The firm’s analyst Jeff Farmer believes other larger restaurant companies can benefit from following Sweetgreen’s methods.

“Sweetgreen has consistently lit the restaurant sector path for both digital and off-premise strategies and we believe that there are valuable lessons to be learned for public equity investors who closely follow Sweetgreen’s progress,” he wrote on Tuesday. “Sweetgreen is not only ahead of the curve, but also shaping the curve.”

Sweetgreen is a privately held premium salad concept with 107 stores in nine states. Farmer noted it was the first chain to implement multiple food production lines (2010), mobile order and pay (2013), and pickup shelves (2013).

The analyst noted Sweetgreen’s digital sales are already at 50% of total revenue, which is “best-in-class” for non-pizza restaurant chains. He is optimistic about the company’s innovative “Outpost” program, which started in September 2018. It installs order pickup shelves in corporate offices, building lobbies, and apartment buildings, offering free delivery to customers who use them. Sweetgreen has nearly 800 “Outpost” locations already.

Last September, The Wall Street Journal reported hedge fundLone Pine Capital invested in the salad chain at a valuation of $1.6 billion.

Farmer said Wingstop (WING) and Chipotle Mexican Grill (CMG) are “best positioned” to follow Sweetgreen’s successful strategies. He has a Buy rating for Wingstop and a Hold rating for Chipotle stock.

Write to Tae Kim at tae.kim@barrons.com