Sale ales Ta Taxat ation on in in Connec nnecti ticut Co - PowerPoint PPT Presentation

Sale ales Ta Taxat ation on in in Connec nnecti ticut Co Conn nnecticut St State Ta Tax x Pa Pane nel William illiam F. Fox, Dire irector Center for Business and Eco Cen Economic Res Research ch Has aslam lam Colle llege of Business The Th e Univer ersity of Ten Tennessee, , Knoxville

 Revenue elasticity has been very low over the past 15 years (0.22), low over the past decade (0.57) and has been negative for three of those years. William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 2

Millio illions 1,000.0 1,500.0 2,000.0 2,500.0 3,000.0 3,500.0 4,000.0 4,500.0 500.0 0.0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

 Revenue elasticity has been very low over the past 15 years (0.22), low over the past decade (0.57) and has been negative for three of those years.  Generates 25% of state tax revenues – low on national standards William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 4

Figure 1: Percent Distribution of Connecticut State Tax Revenues, 2014 Per ercent o t of f Tax Reven enues es 4.7% 3.9% Sales 25.0% Selective Sales Individual 17.6% 48.8% Income Corporate Income Source: http://taxadmin.org/fta/rate/14taxdis.html

 6.35% standard tax rate - below national 6.9 state/local median rate ◦ Connecticut imposes 7 sales tax rates, which is high on national standards William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 6

Less than 5% 5% to 6% Greater than 6% None --11-- --19-- --15-- --5--

 6.35% standard tax rate - below national 6.9 state/local median rate ◦ Connecticut imposes 7 sales tax rates, which is high on national standards  Connecticut’s collected sales tax base (27.9%) is narrow relative to national standards (36.8%), but only Maine is broader among northeast states.  Taxation of services is relatively broad William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 8

U.S. = 36.8% No sales tax Less than 36.8% 36.8% to 48.0% Greater than 48.0% --5-- --22-- --12-- --11--

60.0% as Share of Personal 50.0% 40.0% come Incom 30.0% ase as Bas 20.0% ax B ales Tax 10.0% Sal 0.0% 19791981198319851987198919911993199519971999200120032005200720092011

 Tax all household purchases, regardless ◦ How obtained ◦ Where obtained ◦ Who is the seller  Exempt business purchases  Destination tax ◦ Tax out-of-state purchases, including e- commerce, cross border shopping, etc., ◦ Exempt out-of-state sales William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 11

 CT provides 49 exemptions, many of which are intended to move the sales tax from a tax on all transactions to a tax on consumption.  $243.6 billion total value of exemptions  72% of exemptions are for intermediate purchases and out-of-state sales  But, the exemptions mean that tax can depend on who buys, what they buy, who they buy from, where they buy, and how they buy William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 12

 Distributes tax burden proportionally to consumption  Allows a lower revenue neutral tax rate  Enhances horizontal equity  Limits effects of the sales tax on behavior BUT  May tax purchases that are not taxable in other nearby states, and creates problems for some in-state businesses  Vertical equity? DRS indicates ◦ 5.81% burden for lowest decile ◦ 0.17% for highest decile William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 13

 Fast growing service consumption, and particularly health care  E-commerce – tax consumption the same regardless of how acquired ◦ SSTGB ◦ More expansive nexus definitions ◦ Work with others in challenge of Quill  Tax digitized media William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 14

$6,000 Total Business to Consumer (B2C) $5,000 Total Business to Business (B2B) $4,000 illions $3,000 Bill $2,000 $1,000 $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 *Sales-taxing states only. 15

 Perhaps 35% of CT sales tax on business purchases, which is low on national standards  Case for exemption: ◦ Taxes production, and could discourage firm locations/production ◦ Encourages vertical integration ◦ Harms small business ◦ Cascades into higher product prices  But if exempt: ◦ Bases tax on purchaser and can raise compliance costs and fraud ◦ Requires a higher tax rate – over 8 percent William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 16

 Pol olicy O Opti ption 1 : Red Reduce t the n e number of sa sale les s tax ra rates. s. O One ra rate is is pre referr rred, though t the s e state m e may want t to lev evy separate e taxes es o on i items p purcha chased ed heavily b by tour urists ts, s such ch as a hotel el o or rental al c car ar tax ax. . William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 17

 Tax additional goods ◦ Food other than meals ◦ Tax holidays  Tax additional services ◦ Residential utilities ◦ Residential repairs and renovations William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 18

 Policy Option 2: Impose se t the sa sale les t s tax on a all fo ll food purchases, s, re regard rdless ss o of f whether re r regard rded a as s part rt o of f a meal. l. Purchases m s made w wit ith fo food st stamps would rem emain exe exempt u under a any policy c chan ange . William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 19

 Policy Option 3: Elim liminate t the sa sale les s tax h holid liday. y. William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 20

No Holiday No Tax School-related School & Energy / Everything* --28-- --5-- Hurricane-related --8-- --2-- --7-- -- Louisiana has 3 holidays: 1) hurricane prep; ii) hunting supplies; and iii) all tangible personal property.

 Policy Option 4: Bro roaden t the sa sale les s tax to more re se servi rvices use sed b by consumers rs, inclu ludin ing r residentia ial u l utilit litie ies s and re repairs s to re resid sidential re real p l pro roperty. William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 22

 Exemption for transactions between wholly owned subs and parent  Other business services ◦ Employment/training services ◦ Computer services ◦ Lobbying and consulting ◦ Business analysis William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 23

 Policy Option 5: Reduce t uce taxation o n of inter ermed ediate s te services ces and p particu cularly employmen ent and c comput uter er s services ces. William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 24

 Policy Option 6: Le Legisl islate a a le less ss string ngent ent o owner nershi hip r rule e for exemption w when se servi rvices s are re so sold ld between een a a parent nt and a a subsidiary. William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 25

 Policy Option 7: Elimina nate t te the e exem emption fo for sa r sale les t s to not not-for or-pro rofit fit organ anizat ations except when t exc the p purchases a are u e used ed to pro roduce goods a s and se servi rvices t that a are re sa sale les s taxed w when p pro rovi vided t to benef nefici ciaries es, o or add a a requi uirem emen ent that t the e not not-fo for-pro rofit fit orga gani nizations ns m meet t certain criteria evidencing that their work is in the p e public i interest. William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 26

 Not-for-profits ◦ Distinguish between philanthropic and service providing? ◦ Provide the same exemptions for intermediate goods that other businesses face  Governments – why exempt sales to or sales by governments? William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 27

 Policy Option 8: Impose se t the sa sale les t s tax on s sales t to go gover ernm nment ent entities es. William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 28

 Policy Option 9: Lev evy the s e sales es tax o x on sa sale les b s by gove vernment in in case ses w s where the p public a c activiti ties es c compet ete w e with t th the private sector, such as parking. William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 29

 Policy cy Option 10: Join t n the e Strea eamlined ned Sales es Ta Tax x Governing Bo Board. William F. Fox • Center for Business and Economic Research • http://cber.bus.utk.edu 30