Gov. Deval Patrick announced the agreement on Tuesday, a deal long sought by owners of traditional "brick and mortar" stores in Massachusetts who say online tax-free purchases put them at a critical disadvantage since they are required to collect the tax on their products. They say the arrangement has amounted to an automatic 6.25 percent discount for online merchants that they can't match.
Under the agreement, Amazon will start collecting the Massachusetts sales taxes on Nov. 1, 2013.
"It's a very big win for Main Street," said Jon Hurst, president of the Retailer Association of Massachusetts. "Small merchants will compete price-wise and service-wise. What they cannot accept is a government-imposed advantage."
The governor said the state and Amazon will work together to push for federal legislation that would "resolve the sales tax issue by creating an equitable and simple framework for collecting sales taxes" from all Internet sellers.
Amazon vice president of global public policy Paul Misener said the company is urging Congress to come to what he called a "final resolution to the sales tax issue."
"Federal legislation is the only way to level the playing field for all sellers, the only way for states to obtain more than a fraction of the sales tax revenue that is already owed, and the only way to fully protect states' rights," he said in a statement.
Amazon now collects sales taxes on orders shipped to a number of states, including New York, California and Texas, and has agreed to start imposing levies in other states.
Massachusetts Secretary of Administration and Finance Jay Gonzalez said he expected the agreement to bring in "the lower tens of millions of dollars" more each year in state revenues.
"It's not going to solve all of our revenue challenges but it certainly will help," Gonzalez said. "It will help mitigate the erosion of our sales tax base."
Estimates of how much Massachusetts would collect in sales taxes from all online sellers vary, but most put the number in hundreds of millions annually.
The National Conference of State Legislatures estimates Massachusetts will lose about $268 million in tax revenue in 2012 in uncollected sales taxes for online and catalog purchases. State Treasurer Steven Grossman said other estimates put the loss as high as $387 million for 2011 - a figure Grossman said could rise to $783 million by 2020 if Internet businesses continue not to collect the tax.
Grossman said traditional retailers are important to the state's economy also for the hundreds of thousands of Massachusetts workers they employ.
"My interest is in making sure that we protect those 500,000 retail jobs and all those small retailers here who have been operating on an unlevel playing field for so long," Grossman said. "Let people buy wherever they want, but let's make sure the playing field is level."
The deal in Massachusetts is similar to others Amazon has worked out with states across the country, paving the way to start opening warehouses and offering faster shipping in areas where tax disputes had previously prevented it from putting down roots. Misener said Tuesday that Amazon plans to add hundreds of high tech jobs in Massachusetts.
"We are thankful Amazon was willing to come to the table," Patrick said in a statement. "This agreement is a win for all sides."