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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 l.jpg

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 l.jpg

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


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SHARE OF SERVICES

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


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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


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SHARE OF TAX REVENUES

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


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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


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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


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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


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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


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TAX BASE HAS NARROWED OVER TIME

  • Services Grow Faster than Goods

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


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PERSONAL CONSUMTPION EXPENDITURES, 1979 and 1998

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


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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


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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


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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


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STATE RESPONSE--RAISE RATES

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


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STATE SALES TAX COLLECTIONS AS A PERCENT OF GDP


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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


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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


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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


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GOALS IN DESIGNING TAX STRUCTURES

  • Appropriate Revenue Growth Path

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


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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


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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


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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


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FEDERAL TRANSFERS AS A PERCENT OF GENERAL REVENUE

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


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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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