The Impact of Local Option Sales Taxes on Retail Sales, Employment, Payrolls, and Establishments: The Case for Kansas

John D Wong

doi:10.52324/001c.8949

Abstract

This study examines the impact of local option sales tax differentials in the State of Kansas on retail sales, retail employment, retail payrolls, and the number of retail establishments. It was found that (1) the county tax rate is inversely and significantly related to retail sales per capita, retail sales per vendor, and retail employment per vendor; (2) the city tax rate is inversely and significantly related to the number of retail establishment per capita only; (3) there is a significant border effect for counties bordering another state on retail sales per capita, retail sales per vendor, retail employment per capita, retail employment per vendor, retail payrolls per capita, retail payrolls per vendor, and the number of retail establishments per capita; and (4) regional market dominance is directly and significantly related to retail sales per capita, retail employment per capita, retail payrolls per capita, and the number of retail establishments per capita

Highlights

Over the past two decades, financially strapped local governments have been under pressure to develop revenue sources to supplement property taxes
This study examines the impact of local option sales tax differentials in the State of Kansas on retail sales, retail employment, retail payrolls, and the number of retail establishments
Counties bordering on Colorado experience significantly higher retail sales per capita and retail sales per vendor, even though Colorado has a lower state sales tax rate, while counties bordering on Missouri experience significantly lower retail sales per capita, even though Missouri has a higher state sales tax rate

Summary

INTRODUCTION

Over the past two decades, financially strapped local governments have been under pressure to develop revenue sources to supplement property taxes. The Review ofRegional Studies ing the impact of one jurisdiction on an adjoining one with a different sales tax rate. One major determinant of the impact of a local sales tax on retail sales is the relative regional market dominance of the taxing jurisdiction Larger communities, with their greater relative concentration of retail establishments, tend_to be affected less by increases in the local sales tax. With their greater relative concentration of retail establishments, tend_to be affected less by increases in the local sales tax This issue is especially relevant for jurisdictions in thinly populated rural areas. Mikesell and Zorn (1986) found that local sales tax rate differentials reduce retail sales in a city primarily by lowering sales per seller rather than by decreasing the number of sellers. It is postulated that the local sales tax will have a negative effect on retail sales, employment, payrolls, and the number of establishments

DEFINITIONS AND DATA

Retail Sales

Retail Employment

Retail Payrolls

Retail Establishments

CONCLUSIONS