Sales Tax: Federal vs. State
woes...@gmail.com
more about a national sales tax. Every time a national sales tax comes
up in politics, people jump all over it, saying it's regressive and
evil. Whether or not a national sales tax is a good idea is not the
subject of my post. Instead, I have a question about consistency. If
a national sales tax is such a bad idea, why do the vast majority of
the states have their own sales tax?
I'm interested in what anyone has to say on the matter.
Thanks,
Bill
Paul A. Thomas
<woes...@gmail.com> wrote
> why do the vast majority of the states have their own sales tax?
While you'll probably not find anything definitive on the subject, the
reasons may have to do with the perception that by spreading the tax burden
over several types of sources (income, property, sales) there is a more fair
distribution among the public.
The few states that don't have a sales tax, or don't have an income tax,
have to make that tax revenue elsewhere.
Amazingly, sales tax seems to be the one area that many voters will increase
given the right pitch from politicians. Several Georgia Counties have voted
to increase their sales tax amount to fund certain projects within that
county.
I suppose the perception is that others from outside the county buy things
here and we'll get tax dollars from them. The kicker is, that the people
who live here, buy here too.
If you look at the Alaska Burroughs, those with a high amount of tourist
traffic have a local sales tax. Just guessing there is a "reason" for that.
--
Paul A. Thomas, CPA
Athens, Georgia
paultho...@bellsouth.net
Shawn Hirn
woes...@gmail.com wrote:
> With tax reform fresh on everyone's brain, I was thinking a little bit
> more about a national sales tax. Every time a national sales tax comes
> up in politics, people jump all over it, saying it's regressive and
> evil. Whether or not a national sales tax is a good idea is not the
> subject of my post. Instead, I have a question about consistency. If
> a national sales tax is such a bad idea, why do the vast majority of
> the states have their own sales tax?
Greed, of course. Note that states such as Pennsylvania where there's a
six percent sales tax also has a flat rate state income tax. Lots of
Pennsylvanians simply buy big ticket goods out of state in Delaware to
avoid paying the sales tax.
Katie
1920's, state revenues came primarily from ad valorem property taxes
and income taxes. When property values and incomes dropped, states
were desperate for revenues. Although a few states had experimented
with business taxes measured by sales or gross receipts before 1930,
Mississippi was the first state to adopt a general sales and use tax in
1932. By 1937, about 23 states had enacted them, and 10 more states
followed suit during the World War II years. By 1970 the tax had
spread throughout the country. The only states that do not impose
general statewide sales/use taxes today are New Hampshire, Oregon,
Montana, Alaska, and Delaware. Alaska does authorize local sales/use
taxes, which are in effect in almost all of the populated areas of the
state. See John L. Mikesell, _The Future of American Sales and Use
Taxation_, in _The Future of State Taxation 15 (D. Brunori ed. 1998),
and Richard D. Pomp & Oliver Oldman, _State and Local Taxation_, 4th
Ed. 2001, 6-3.
Many commentators have suggested that a balanced, fair tax system
includes taxes measured by wealth (property taxes), income, and
consumption (sales/use taxes). Some states rely more heavily on one
leg of this three-legged stool than others, but on the average, states
derive about a third of their revenue from general sales/use taxes, a
third from individual income taxes, and the other third from other
sources including selective sales taxes such as taxes on alcohol,
amusements, tobacco, gasoline, telecommunications, other public
utilities, etc. Property taxes, which were once the primary source of
state revenues, now are the mainstay of local governments, which also
derive a significant part of their revenues from local sales/use taxes.
One reason why a national sales tax has not received more support is
that the states strenuously oppose it, considering the sales/use tax to
be their exclusive revenue source. Pomp and Oldman (id., 6-7) point
out that the sales tax gives states an independent revenue source,
untapped by Congress, and allows the property tax to be ceded to local
jurisdictions. Also, compared to income taxes, the sales tax is a
relatively stable revenue source during economic downturns; in fact,
that's why it spread so rapidly in the 1930's.
Of course the sales tax is criticized as regressive. Low-income
families must spend most or all of their income on consumption, while
higher-income families have more choices, and therefore may pay a
smaller percentage of their total income in sales taxes. The
regressivity of the tax is mitigated in most states through exemptions
or differential rates for certain essential consumption items, such as
groceries, prescription drugs, and clothing.
The state and local sales/use tax is threatened as a revenue source by
the historical limitations of its base. In general, the tax is imposed
on all sales/purchases of tangible personal property, unless
specifically exempt. It is not imposed on other sales/purchases, such
as services or intangibles, unless specifically enumerated in the
statutes. Although many states now tax specified services, in general
sales of services and intangibles escape the tax. Also, it does not
apply to sales of real property. In 1965, 67.3% of the gross national
product (excluding government purchases) arose from commodities; by
1989, that share had declined to 55.3% (Pomp & Oldham, id., 6-23, fn
77). The rest arose from services, other intangibles, and real
estate. If a national sales tax were to be enacted, the BIG issue
would be how to define the base. Presumably the tax would apply to
many sales that are historically exempt from state sales/use taxes;
otherwise the rate would have to be objectionably high, and the base
relative to the total economy would probably continue to shrink. So,
would an NST apply to purchases and rentals of real property? Fees for
professional services (medical, legal, accounting, consulting, etc.)?
Royalties for the use of technology? Stock exchange transactions?
Katie in San Diego
The foregoing is intended for educational purposes only and does not
constitute legal or professional advice.