Local Business Tax Research Articles

Literasi Perpajakan dan Kualitas Pelayanan Homestay

Homestay Kamojang already has several customer segments, but government agency customers require entrepreneurs to have a Taxpayer Identification Number. Likewise, homestay management still needs to have service quality standards. Therefore, community service activities through the Community Service Engagement program for homestay owner communities who join the Kamojang Homestay Association focus on homestay tax literacy and quality of homestay service. The assessment results of homestay tax literacy activities showed that most participants understood local taxes, micro, small, and medium business taxes, tax rates, and tax sanctions related to homestay tax regulations. The homestay service quality literacy assessment results showed that most participants understood the elements of service quality, criteria, and homestay functions. The majority of homestay owners have relatively good service quality elements.

The Newest Hungarian Tax Innovation – Taxing Flight Departures

Hungary is famous for introducing unorthodox taxes and trying new avenues of collecting tax revenue. As of 2024, the permanent establishment definition under the Local Business Tax Act has been extended to the ticket sales revenues of airlines departing from Hungarian airports, regardless of whether or not such airlines otherwise have a business presence in the country. This note explains the main features of the amendment and highlights certain theoretical and practical aspects.

A Candle in the Wind? The Tax Autonomy of Hungarian Municipalities in Light of the Coronavirus Pandemic

Abstract This article aims to offer a brief introduction to the system of local tax autonomy in Hungary, primarily by accentuating its peculiar features compared to other systems used in the region. Particular attention is paid to the local business tax, a less typical source of local revenue, which constitutes the backbone of the Hungarian system, and to the relatively recently introduced possibility for local authorities to levy so-called ‘settlement taxes’ on an open-list basis. The author then describes how the coronavirus pandemic and the measures aimed at mitigating its economic consequences affected local governments’ financing mechanism and fiscal capacity. Finally, by drawing conclusions from these occurrences, the resilience of local tax autonomy in Hungary is evaluated.

ENSURING FINANCIAL SELF-SUFFICIENCE OF TERRITORIAL COMMUNITIES: EXPERIENCE OF EU COUNTRIES

Introduction. The change of the administrative-territorial system at the basic level and the reform of the public administration system in Ukraine in 2014–2020 took place on the basis of the experience of the EU countries regarding the decentralization of administrative and financial powers in favor of local self-government. Today, the first stage of reform has already been com­pleted, because territorial communities as the basic units of the administrative-territorial system have been formed throughout the territory of Ukraine, as well as redistribution of spending powers and revenue sources between different levels of management. Accordingly, the issue of ensuring financial self-sufficiency of territorial communities for the long term is being updated. Decentralization in European countries took place in different periods, and therefore, the tasks that today face the Ukrainian state and local self-government in particular, these countries have already solved with one or another measure of efficiency, which makes it possible to talk about the possibility of adapting the acquired experience to domestic realities. The purpose of the article is to study European practices of ensuring financial self-suffi­ciency of basic administrative and territorial formations for the further implementation of the most effective practices in domestic realities. Results. The practice of developing the public finance system on the basis of decentral­ization in the EU countries was studied, the difference between the levels of decentralization of territorial communities in different countries and the tendency to exceed the level of decen­tralization of expenses over the level of income decentralization was revealed. Emphasis is placed on the key principles of ensuring financial self-sufficiency of territorial communities in the European Charter of Local Self-Government. The existence of a financial "cushion" for territo­rial communities in the form of distributed resources from supranational funds is substantiated. Given the lack of such a mechanism in Ukraine, the need to study European practices for accu­mulating sufficient financial resources for community development is argued, including taxes on economic activity (personal income tax, corporate income tax, local business tax, property taxes on commercial real estate and land) and local borrowing.

A PHILIPPINE MODEL FOR INFORMATION SHARING FOR EFFECTIVE REVENUE COLLECTION THROUGH E-GOVERNANCE

—Local revenues are the backbone by which local governments anchor the sustenance of their operations, functions and projects within their jurisdiction. Local Government Units (LGU’s) in the Philippines depend heavily on local revenue generation- for their development. Although having the Internal Revenue Allotment (IRA) given by the national government through which they support their activities and promote their growth, each local government unit through its treasury office rely on an effective local tax administration and collection system in order to get the best possible resource to serve this purpose. Nevertheless, the problem of local revenue tax collection is a perennial problem and this is traced to many factors that play a part in the inability of the local treasury office to exercise their function to the fullest merit. Optimum tax collection efforts can be enhanced by the local treasury office should it have the ability to synchronize information records which allows the treasury office to check and verify the records taxpayers paying business taxes. Access to this knowledge will give the local treasury the capability to maximize tax collection effectively. And because the local treasury organization like any other government organization is structured to become compatible with new technology development to help it faced with changes in its environment, present day technology in terms of information is now made part of that response. Verification of accuracy of payments through collaborative inter agency efforts is now available. This requires three agencies to collaborate in comparing actual gross sales/receipts from declared gross sales/receipts based on the gathered documents like the books of account, audited financial statements, vat returns and the official receipts as proof of payment of the local business taxes. Three agencies have been mandated to collaborate on this endeavor: the Local City Treasury, the Bureau of Internal Revenue and the Secur

Large and influential: Firm size and governments’ corporate tax rate choice

AbstractTheory suggests that large firms are more likely to engage in lobbying behaviour and are geographically more mobile compared with smaller entities. Conditional on jurisdiction size, policy choices are thus predicted to depend on the shape of a jurisdiction's firm size distribution, with more business‐oriented policies being enacted if jurisdictions host large firms. The paper empirically tests this prediction using local business taxation in Germany as a testing ground. Exploiting rich and exogenous variation in municipalities’ firm size structures, we find evidence for an inverse relationship between the size of hosted entities and municipalities’ local business tax choices. The effect is statistically significant and quantitatively relevant, suggesting that the rising importance of large businesses may trigger shifts towards a more business‐friendly design of (tax) policies.

The revenue and base effects of local tax hikes: evidence from a quasi-experiment

Due to a reform of the local equalization scheme in 2003, a set of municipalities in the German state of North Rhine-Westphalia (NRW) increased their local property and business tax rates by one to two percentage points, while the remaining municipalities kept their rates constant. I use this variation across municipalities and over time to study the revenue and base effects of local property and business tax hikes in a generalized difference-in-differences design. The results suggest that the property tax hikes had even in the long-run a revenue elasticity of unity. Accordingly, I find no adverse effects on property tax bases. For the business tax, I find no significant effects on revenues and bases. Furthermore, there are also no effects on broader economic outcomes such as local employment, firms’ wage bill, and property prices. Overall, increasing local tax rates by one to two percentage points does not seem to affect the local economy adversely.

Evaluating State and Local Business Incentives

This essay describes and evaluates state and local business tax incentives in the United States. In 2014, states spent between $5 and $216 per capita on incentives for firms in the form of firm-specific subsidies and general tax credits, which mostly target investment, job creation, and research and development. States with higher per capita incentives tend to have higher state corporate tax rates. Recipients of firm-specific incentives are usually large establishments in manufacturing, technology, and high-skilled service industries, and the average discretionary subsidy is $178M for 1,500 promised jobs. Firms tend to accept subsidy deals from places that are richer, larger, and more urban than the average county, and poor places provide larger incentives and spend more per job. Comparing winning and runner-up locations for each deal, we find that average employment within the three-digit industry of the deal increases by roughly 1,500 jobs. While we find some evidence of direct employment gains from attracting a firm, we do not find strong evidence that firm-specific tax incentives increase broader economic growth at the state and local level.

Intergovernmental revenue relations, tax enforcement and tax shifting: evidence from China

This paper provides empirical evidence on how intergovernmental revenue relations would affect governments’ incentives on tax enforcement in a developing country. By taking advantage of the exogenous shock induced by China’s corporate tax income revenue sharing reform in 2002, I find that the local governments would increase tax enforcement on local business tax and surcharges (BTS) to offset the adverse fiscal shock. In addition, such tougher tax enforcement was heterogeneous across firms. The increased effective BTS was mostly driven by non-state-owned enterprises and domestic firms. This paper further shows that the incidence of corporate tax could be passed onto workers through lower wages and benefits. On average, the share of corporate tax burden borne by workers in China is approximately 62%, which is higher than the estimate in Germany (Fuest et al. in Am Econ Rev 108(2):393–418, 2018).

Tourism and urban economic growth: A panel analysis of German cities

Even though cities are among the most important tourist destinations, research on tourism as a vehicle for economic growth – most often approached via the tourism-led growth hypothesis (TLGH) – has predominantly been limited to countries. This study explores the validity of the TLGH in an urban context. Panel data were collected for 89 German cities on different indicators of urban economic growth. Pedroni panel cointegration confirmed a long-term equilibrium between tourism, local business tax revenue, income tax revenue and real GDP, indicating that even for cities within a strong, developed economy, tourism contributes to wealth creation. A Panel Granger causality analysis established a one-way Granger causal relationship from tourism to local business tax and income tax and a bidirectional relationship between tourism and real GDP. This causal relationship was stronger for cities with a high to medium tourism intensity.

Local taxation and tax base mobility: Evidence from France

This paper investigates the impact of tax base mobility on local taxation. First, we develop a theoretical model in order to examine the connection between local business property taxation and tax base mobility within a metropolitan area. We find that, in the presence of a budget compensation, decreasing capital intensity in business property tax base, composed of capital and land, increases the business property tax rates and decreases the tax rates on residents. We test this result using a French reform which changed the composition of the main local business tax base in 2010. Difference-in-difference estimations show that in 2010, the reduction in tax base mobility indeed resulted in a 14% rise in business property tax rates and a reduction in housing tax rates of 1.3%, compared to pre-reform average levels.

History of local taxation in Germany

The article discusses the history of local taxation in Germany and its current state, focusing on the correspondence of the existing local taxes to the criteria of optimal local taxation. The author’s hypothesis is that the German system of local taxation, which dates back to the imperial period, can and should be reformed in order to meet the internationally recognized criteria. The analysis is based on several criteria: the general criteria, which apply to all taxes, including federal; criteria for local and central taxes and, last but not least, criteria for relationships between local governments. The history of the three local taxes (property tax, business tax and income tax) is viewed in the light of the above-described criteria. It is shown that the local business tax needs to be adjusted according to the criteria of optimal local taxation. The author also explains why, from the theoretical perspective, it was important to transfer the revenue from the income tax to the local level in 1969 and points out that local governments currently lack the authority to set tax rates. The case of the property tax, introduced in 1936, is particularly interesting, taking into consideration the current plans to amend the existing legislation. The author compares the two possible scenarios of the future tax reforms and comes to the conclusion that only one of them fully meets the international standards. The analysis has shown that the local taxation system in Germany is quite efficient, although there is definitely some room for improvement. The combination of the business tax and the income tax allow local authorities to balance the interests of local households and businesses. For citation Zimmermann H. History of local taxation in Germany. Journal of Tax Reform. 2019;5(1):57–69. DOI: 10.15826/jtr.2019.5.1.060 Article info Received December 17, 2018; accepted March 12, 2019

Local fiscal policies and their impact on the number and spatial distribution of new firms

We examine the effect of local business taxation and local public good and service (PIGS) provision on the number and spatial distribution of new firms. The analysis draws on panel data for the universe of rm foundations in German municipalities, matched to municipalities' local business tax rates and the level and structure of their local PIGS provision. Methodologically, we estimate fixed effects poisson models coupled with a control function approach. The results suggest that local business taxation (PIGS provision) has a strong negative (positive) impact on the number of new firms in the policy-changing jurisdiction. Local business taxes are, moreover, found to exert beggar-thy-neighbor externalities on neigboring jurisdictions: tax reductions strongly lower the number of neighbors' rm foundations, implying that the aggregate number of new firms remains unchanged; while PIGS provision, on average, exerts no significant impact on the number of firms in adjacent jurisdictions, negative effects emerge for subsets of PIGS and firms.

The Tax-rate Elasticity of Local Business Profits

AbstractLocal business profits respond to local business tax (LBT) rates that vary across municipalities. We estimate that a 1% increase in the LBT rate decreases the LBT base by 0.45%, based on the universe of German LBT return files, which include corporations and unincorporated businesses. However, the fiscal equalization scheme largely compensates municipalities for the loss in the LBT base when they increase the LBT rate. Our estimates suggest that using tax revenue data instead of tax return data, as commonly done in the literature, results in a significant bias of the elasticity away from zero.

Insufficient Exploitation of Local Taxes — a Case Study of Rhineland-Palatinate

In Germany, state and local authorities repeatedly come into conflict with one another regarding the funding of municipal budgets. The sufficient fiscal endowment of local public authorities depends not only on a satisfactory provision of state grants but also requires an adequate exhaustion of existing sources of revenues at the local government level. Against this background, the paper analyses local tax policy in order to assess whether the budget finance potential is being sufficiently exploited. Taking Rhineland-Palatinate as a case study, the degree of tax exploitation (local business tax, local property tax) is empirically estimated for the time period 2009 to 2015.

Large and Influential: Firm Size and Governments' Corporate Tax Rate Choice

Theory suggests that large firms are more likely to engage in lobbying behaviour and have better bargaining positions against their host governments than smaller entities. Conditional on jurisdiction size, public policy choices are thus predicted to depend on the shape of a jurisdiction's firm size distribution, with more business-friendly policies being enacted if economic activity is concentrated in a small number of entities. We empirically assess this prediction studying local business tax choices of German municipalities. Exploiting rich and quasi-experimental variation in localities' firm size structures, we find evidence for an inverse relationship between the concentration of economic activity and communities' business tax choices. The effect is statistically significant and quantitatively relevant, suggesting that the rising importance of large businesses may trigger shifts towards a more business-friendly design of (tax) policies.

Local Taxation and Tax Base Mobility: Evidence from a Business Tax Reform in France

This paper investigates the impact of tax base mobility on local taxation. We first develop a theoretical model in order to examine the connection between local business property taxation and tax base mobility within a metropolitan area. We find that decreasing capital intensity in the tax base increases the business property tax rates unambiguously. We then test this result using a French reform, which changes the composition of the main local business tax base in 2010. Estimations using Difference-in-Difference show that the reduction in the mobility of the tax base indeed results in higher business property tax rates. Housing tax rates were not affected by the reform.

Tax Mimicking in Local Business Taxation: Quasi-Experimental Evidence from Portugal

I exploit an exogenous reform introducing a local business tax in Portugal to study tax mimicking among jurisdictions. The identification strategy relies on a quasi-experimental difference-in-differences methodology and heterogeneity in treatment intensity. Results provide evidence of significant short-run tax mimicking that decreases over time. I study possible generating processes underlying the strategic interaction among municipalities and find significant evidence of electoral concerns. These electoral concerns are not met with electoral consequences at the local elections, which may be behind the diffusion of local business taxation in the long run.

Formula Apportionment: Factor Allocation and Tax Avoidance

This paper addresses the question of how firms react to tax incentives in a formula apportionment (FA) tax regime. Under FA, the profits of all consolidated entities of a business group are summed and then allocated according to a formula based on FA factors. We hypothesize that firms may change the allocation of real production factors and/or manipulate the FA factor through tax avoidance strategies. Analyzing FA tax effects of the German local business tax with payroll expense as the exclusive FA factor, we find empirical evidence consistent with both hypotheses. Regarding the allocation of production factors, we observe significant tax effects on labor input at the intensive margin but not on labor input at the extensive margin. In addition, we find evidence of an indirect FA spillover effect on capital investment. Our findings on tax avoidance proxies are consistent with tax-induced manipulations of payroll expense as an FA factor to save tax payments.

Heterogeneity in Tax Rate Elasticities of Capital: Evidence from Local Business Tax Reforms

This study examines heterogeneity in tax rate elasticities of corporate capital using staggered variation in local business tax rates of German municipalities. The results suggest an average long-run capital decline of 0.97% after a 1% increase in the tax rate. In line with prior literature that suggests higher investment-cash flow sensitivities of firms with financing constraints tax rate elasticities are up to half times larger for financially constrained firms than for unconstrained firms. Moreover, capital responses are about half times larger for firms with fewer tax avoidance possibilities. Finally, this study contributes to the literature on tax incidence. I find a weaker relation between taxes and capital for firms that are less likely to bear the economic burden of the tax because they shift the tax incidence to their stakeholders.