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SALES TAXES AND ELECTRONIC COMMERCE. William F. Fox, Director Center for Business and Economic Research The University of Tennessee June 1999. ROLE OF STATE AND LOCAL GOVERNMENTS. Provide the Public Services that Enhance Quality of Life Are the Backbone of a Productive Economy.

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sales taxes and electronic commerce

SALES TAXES AND ELECTRONIC COMMERCE

William F. Fox, Director

Center for Business and Economic Research

The University of Tennessee

June 1999

role of state and local governments
ROLE OF STATE AND LOCAL GOVERNMENTS
  • Provide the Public Services that
    • Enhance Quality of Life
    • Are the Backbone of a Productive Economy

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

share of services
SHARE OF SERVICES

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

role of sales taxes in state and local finance
ROLE OF SALES TAXES IN STATE AND LOCAL FINANCE
  • Imposed in 45 States Plus D.C.
  • 6,600 Local Governments

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

share of tax revenues
SHARE OF TAX REVENUES

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

is the sales tax a consumption tax
IS THE SALES TAX A CONSUMPTION TAX?
  • Intent is to Tax Consumption
  • Nonetheless, Sales Tax Base Differs from Consumption
    • Much Consumption is Exempt
      • Most services
      • Some Goods
    • Many Business Purchases are Taxable

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

sales tax base differs widely sales tax base as a share of personal income 1997
SALES TAX BASE DIFFERS WIDELY(Sales Tax Base as a Share of Personal Income, 1997)

Greater than 50%

40% to 50%

Less than 40%

No sales tax

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

is the sales tax a consumption tax8
IS THE SALES TAX A CONSUMPTION TAX?
  • Intent is to Tax Consumption
  • Nonetheless, Sales Tax Base Differs from Consumption
    • Much Consumption is Exempt
      • Most services
      • Some Goods
    • Many Business Purchases are Taxable
  • Must be Destination Based--Use Tax

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

tax base has narrowed over time sales tax base as a percent of personal income
TAX BASE HAS NARROWED OVER TIME(Sales Tax Base as a Percent of Personal Income)

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

tax base has narrowed over time
TAX BASE HAS NARROWED OVER TIME
  • Services Grow Faster than Goods

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

personal consumtpion expenditures 1979 and 1998
PERSONAL CONSUMTPION EXPENDITURES, 1979 and 1998

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

tax base has narrowed over time12
TAX BASE HAS NARROWED OVER TIME
  • Services Grow Faster than Goods
  • Legislated Business Exemptions

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

tax base has narrowed over time13
TAX BASE HAS NARROWED OVER TIME
  • Services Grow Faster than Goods
  • Legislated Business Exemptions
  • Other Legislated Exemptions

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

tax base has narrowed over time14
TAX BASE HAS NARROWED OVER TIME
  • Services Grow Faster than Goods
  • Legislated Business Exemptions
  • Other Legislated Exemptions
  • Remote Purchases
    • Cross Border Shopping
    • Mail Order Shopping
    • Electronic Commerce

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

state response raise rates
STATE RESPONSE--RAISE RATES

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

potentially taxable e commerce events
POTENTIALLY TAXABLE E-COMMERCE EVENTS
  • Tangible Goods and Services Sold over the Internet
  • Digitized Services Sold Over the Internet
  • Access to the Internet

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

goals in designing tax structures
GOALS IN DESIGNING TAX STRUCTURES
  • Neutrality
    • Tax Functionally Equivalent the Same
    • Destination Basis

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

goals in designing tax structures19
GOALS IN DESIGNING TAX STRUCTURES
  • Neutrality
    • Tax Functionally Equivalent the Same
    • Destination Basis
  • Equity
    • Vertical--Difficult with the Sales Tax
    • Horizontal--Broad Tax Base

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

goals in designing tax structures20
GOALS IN DESIGNING TAX STRUCTURES
  • Appropriate Revenue Growth Path

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

goals in designing tax structures21
GOALS IN DESIGNING TAX STRUCTURES
  • Appropriate Revenue Growth Path
  • Ease of Administration and Compliance
    • E-Commerce Presents Some Problems
    • Simplification by States Should be Required

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

goals in designing tax structures22
GOALS IN DESIGNING TAX STRUCTURES
  • Neutrality
  • Equity
  • Revenue Growth
  • Administrative and Compliance Ease

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

some options to taxing remote commerce
SOME OPTIONS TO TAXING REMOTE COMMERCE
  • Reduce State and Local Spending Growth
  • Raise Sales Tax Rates
  • More Federal Finance of State and Local Government

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

federal transfers as a percent of general revenue
FEDERAL TRANSFERS AS A PERCENT OF GENERAL REVENUE

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

some options to taxing remote commerce25
SOME OPTIONS TO TAXING REMOTE COMMERCE
  • Reduce State and Local Spending Growth
  • Raise Sales Tax Rates
  • More Federal Finance of State and Local Government
  • Alternative Own-Source Revenues
    • Personal Income Tax
    • Business Taxes
    • Property Taxes

W.F. Fox, Center for Business and Economic Research, UT Knoxville, June 1999

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