Sales Tax Policy Research Articles

Behavioural patterns of leaders versus followers in setting local sales tax policy

AbstractSales tax has been a popular revenue source for local governments in 38 US states. In this fiscal climate, both horizontal and vertical tax competition are frequently observed. Local governments are concerned about adverse impacts thereof on their revenue as mobile shoppers react to tax rate changes by purchasing in lower‐tax jurisdictions. So far, few studies have accounted for potential endogeneity in the behavioural patterns of leaders versus followers in setting local sales tax policy. Using a 40‐year panel dataset from Texas, this study identifies leader municipalities in changing sales tax rates and examines how municipalities asymmetrically respond to multi‐tiered rate changes. The findings depict a crowding‐out story in vertical tax competition and reveal crowding‐in effects in horizontal competition, with leader municipalities immune to both effects.

Optimal consumer sales tax policies for online‐offline retail operations with consumer returns

AbstractMultichannel strategies are widely observed in practice. In some jurisdictions, the previously tax‐free online channel is now required to remit sales tax. Motivated by policy evolution and sales‐tax practices, we build analytical models to study the effects of sales tax on multichannel strategies and social welfare (which is defined as the overall surplus minus the negative external impact). We find that retailers prefer the online‐and‐offline channel to others when the product value is low relative to the consumer channel preference. If the offline sales tax rate is sufficiently high, the offline channel may simply function as the showroom. We also explore the optimal sales tax rate(t) that can maximize social welfare. We recognize that sales tax not only directly affects social welfare by influencing the optimal price (and service) decisions in the supply chain, but also indirectly affects social welfare through retailers' channel choice. In particular, imposing an online sales tax for low value products on small retailers only to transfer revenue from the retailers to the government; it is ineffective in increasing social welfare. We advise governments to develop sales tax policies based on consideration of channel type, product category, and the fit between the channel and product. Whereas an online tax free or a uniform tax rate fits low value products, setting different tax rates for different channels can be admissible for high value products. Counterintuitively, we also find that consumer showrooming may increase social welfare, as it reduces product returns (and the corresponding environmental impacts).

Does the room sharing business model disrupt housing markets? Empirical evidence of Airbnb in Taiwan

Recent research interest has focused on the impact of the room sharing business model on housing markets. However, existing empirical evidence is limited and exclusively focuses on few large cities in the U.S. This study examines the effects of Airbnb on housing rental and sales prices using a unique large-scale dataset comprised of housing market transaction records and the number of Airbnb listings drawn from their website in Taiwan. We estimate a fixed effect model of housing rental and sales price equations and find that a one-standard deviation increase in the number of Airbnb listings raises house rental prices by 0.38%. This finding suggests that a substitution effect is present between Airbnb's short-term accommodation and the housing rental market. Moreover, a larger effect on rental price is found among Airbnb listings that offer an entire room or apartment. Additionally, since September 2017, multinational digital platform companies must comply with a new sales tax policy in Taiwan. We evaluate the effect of this tax policy using the difference-in-difference method and find a negative impact on the number of Airbnb listings and housing rental prices after its implementation. This study is the first to empirically assess the effectiveness of tax policy on regulating room sharing business models.

Analysis of state general sales tax policy: A complementary approach to the effects of causes and the causes of effects

Previous research and theory on state general sales tax policy provide the major factors and components of the sales tax base that affect revenue reliance and tax burden. However, previous research on general sales tax policy has concentrated on individual factors and components of the sales tax base without considering the interdependent and interrelated causes of revenue reliance and tax burden. In addition, regression-based analyses are limited in analyzing the causal conjunctures that affect revenue reliance and tax burden. Thus, this research focused on a complementary approach to the effects of causes and the causes of effects, thereby empirically examining the combined causes of revenue reliance and tax burden through a (fs) QCA analysis of U.S. state data spanning from 2007 to 2010. This study reveals that the combined causes of revenue reliance and tax burden vary as ideal types compared with the effects of real types observed in the panel data analysis. This study contributes to the current literature by examining interrelated and interdependent causal relationships with regard to revenue reliance and tax burden in a complementary manner. State governments must consider the combined effects of causal conjunctures that affect revenue reliance and tax burden.

Consumers’ Behavioral Response to Sales Taxes on Food in Kansas

This study examines the effects of sales taxes on food in Kansas counties from 2012 to 2013. Sales taxes that include sales of food for at-home consumption may be more stable due to their low price elasticity of demand. However, border effects caused by tax rate differentials across jurisdictions may create significant revenue losses for local governments. This study improves the reliability of existing empirical results by calculating an index of the relative tax burden of a county and all surrounding counties. Unlike existing studies where dummy variables are used to indicate whether the adjacent county has lower tax rate, we employ a measure of relative tax burdens as an indicator of sales tax policy differentials. Empirically, we employ a difference estimator on panel data with corrections for heteroscedasticity and autocorrelation. Our results suggest that food sales in Kansas are sensitive to tax rate differentials.

Just One Click Away: The Politics of E‐Commerce Sales Tax Policy

E‐commerce has altered the relationship between consumers, businesses, and U.S. states. E‐retailers are not required to collect sales tax from their customers, thus depriving fiscally insecure states of tax revenue, and providing a competitive advantage for e‐retailers, like Amazon Inc., in their struggle for market share with brick‐and‐mortar stores, like Walmart. Attempts at e‐commerce sales tax policy by state legislators and brick‐and‐mortar lobbyists failed until 2008 when New York successfully passed legislation. A subsequent wave of legislation ensued, and between 2008 and 2012, e‐commerce sales tax legislation left committee in fourteen states, each experiencing various levels of success. Existing explanatory efforts have not fully accounted for the combinatorial effect of political–institutional structure and market contestation in U.S. state‐level policy creation, as well as the likelihood of multiple pathways to passage. Embracing this framework, I use fuzzy set Qualitative Comparative Analysis (fsQCA) to uncover three sufficient pathways for successful passage of e‐commerce sales tax policy. Two paths highlight the confluence of large retailer pressure and a conductive political–institutional structure facing fiscal stress, while the third path reflects political–institutional forces. These findings corroborate, as well as build upon, our knowledge of fiscal sociology, policy domains, and corporate power in American politics.

Impact of Alternative Property and Sales Tax Policies on Texas Representative Farms

The call for school finance reform has threatened to modify or possibly remove the current property and sales and use tax exemptions currently benefiting Texas agricultural producers. This study utilizes a whole farm simulation model to evaluate the economic and financial impact of three alternative sales and/or property tax policy changes on Texas farms, dairies, and ranches along with their respective landowners. Results indicate that removing sales tax exemptions would most adversely impact producers, while removing property tax exemptions has a more negative effect on landowners.

A macroeconomics perspective on international coordination in sales taxes

This article investigates how international coordination vis-à-vis sales tax policies affects the welfare of participating countries. A country's tax policies have asymmetric effects on the pricing behaviors of domestic and overseas producers. International cooperation endogenizes the externality that improves the purchasing power of foreign residents, but at the cost of its own residents’ work efforts. The first-best taxes are lower than in the noncooperative case. When world welfare is utilitarian, smaller economies may experience welfare losses from cooperation under the weak income effect of sales tax. We propose a coordinated tax rule that all countries agree to employ.

Political Determinants of State E‐Commerce Sales Tax Policy

In the absence of congressional action, states have two nonexclusive e‐commerce sales tax policy options: membership in the Streamlined Sales Tax Project or enactment of Amazon tax legislation. Previous research has suggested that economic factors are important predictors of adopting the former, and legislators frequently assert that lost revenue is a motivation for adopting either. There is also some evidence that a state's political environment determines policy selection. This article tests these claims. Using two unique datasets, one for each policy, economic factors and foregone revenue are found to not be statistically significant predictors of e‐commerce tax policy adoption. Instead, the political environment matters. The analysis concludes that governors drive state e‐commerce sales tax policy, and that the naïve perception that Republicans are less willing to tax than Democrats is misleading. Furthermore, the analysis finds indirect evidence that retail lobby influence is an important factor in a state's enactment of Amazon tax legislation.Related Articles Bauroth, Nicholas. 2007. “.” Politics & Policy 35 (): 366‐394. http://onlinelibrary.wiley.com/doi/10.1111/j.1747‐1346.2007.00064.x/abstract Smith, Robert W. 2004. “.” Politics & Policy 32 (): 636‐659. http://onlinelibrary.wiley.com/doi/10.1111/j.1747‐1346.2004.tb00199.x/abstract Farnsworth, Stephen J. 2002. “.” Politics & Policy 30 (): 460‐480. http://onlinelibrary.wiley.com/doi/10.1111/j.1747‐1346.2002.tb00130.x/abstract Related Media Film Clip: . 2011. “.” http://www.bloomberg.com/video/74930810/ Ante la falta de acción del Congreso, los estados tienen dos opciones no exclusivas para su política fiscal de comercio electrónico: una afiliación al Streamlined Sales Tax Project o el establecimiento de la ley fiscal Amazon. Investigaciones anteriores sugieren que los factores económicos son importantes predictores para adoptar este último, mientras que los legisladores afirman frecuentemente que la pérdida de ingresos es un incentivo para adoptar cualquiera de las dos opciones. También existe evidencia de que el contexto político de un estado determina la elección de política fiscal. Este estudio pone a prueba estas afirmaciones. Usando dos conjuntos separados de datos, uno para cada política, se encontró que los factores económicos y el ingreso perdido no son predictores estadísticamente significativos de la adopción de políticas fiscales para el comercio electrónico. De hecho, el contexto político sí importa. El análisis concluye que los gobernadores son quienes estatales impulsan la política fiscal para el comercio electrónico y que la imagen ingenua de que los republicanos están menos dispuestos a gravar que los demócratas es engañosa. Además, nuestro análisis muestra evidencia directa de que la influencia el cabildeo de los vendedores al por menor es un factor importante en la promulgación estatal de la ley fiscal Amazon.

Sales Tax Competition and a Multinational with a Decreasing Marginal Cost

We examine a multinational firm which has a decreasing marginal cost, and the optimal sales tax policies of the regions where that firm operates. We show that the regions set higher sales taxes than those given by a cooperative equilibrium. Each region fails to fully internalize the effects of its tax level on another region's welfare and the incentives for that region's authority. Exponential cost functions which exhibit economies of scale (for example Cobb-Douglas) and linear demand functions satisfy our assumptions. Our results suggest the need to coordinate sales tax levels between countries and between smaller entities, like states in the United States. Smaller regions benefit more from such coordination. Lowering sales taxes in each region increases welfare for all regions, profits for firms, and consumer welfare.

Technology, politics, and e-commerce: Internet sales tax and interstate cooperation

Since the advent of the internet, state governments have been challenged to balance the forces of technological change against fundamental decisions about governance and administration. This research examines that balance in the case of electronic commerce and its relationship to state budgets and revenue raised by sales tax. Under the voluntary Streamlined Sales and Use Tax Agreement of 2002, states can cooperate with one another and with sellers to collect sales tax on internet sales, yet only about half the states that levy sales tax have initiated this policy change. This research tests rival explanations for state membership in this interstate administrative agreement and implementation of its provisions from 2003 through 2007. State participation is enhanced by existing technological capacity and frustrated by requirements for shared governance and shared administrative responsibilities. Participation is fostered by more extensive implementation of e-commerce and certain political factors. State fiscal factors and e-Government implementation are not significant. Moreover, state legislative professionalism inhibits state participation in this agreement. These findings have implications for understanding the influence of future technological change on government practices and for intergovernmental relationships weighted toward shared governance. ► Adoption of voluntary electronic sales tax policy across American states over time. ► Extant technological and fiscal capacity and political factors influence adoption. ► Requirements for shared governance and administration hinder adoption. ► Factors that influence shared governance, technology, and administration. ► Factors that influence voluntary policy adoption in American federalism.

Sales Tax Competition and a Multinational with a Decreasing Marginal Cost

We examine a multinational firm which has a decreasing marginal cost, and the optimal sales tax policies of the regions where that firm operates. We show that the regions set higher sales taxes than those given by a cooperative equilibrium. Each region fails to fully internalize the effects of its tax level on another region's welfare and the incentives for that region's authority. Exponential cost functions which exhibit economies of scale (for example Cobb-Douglas) and linear demand functions satisfy our assumptions. Our results suggest the need to coordinate sales tax levels between countries and between smaller entities, like states in the United States. Smaller regions benefit more from such coordination. Lowering sales taxes in each region increases welfare for all regions, profits for firms, and consumer welfare.

Cross-Border Shopping and the Sales Tax: An Examination of Food Purchases in West Virginia

Abstract In this article we present new evidence of cross-border shopping in response to sales taxation. While several instructive studies provide estimates of the cross-border shopping effect, we utilize a unique opportunity to evaluate the effect of a large discrete change in sales tax policy. Using county level data on food sales and sales tax rates for West Virginia over the 1988-1991 period we estimate that for every one-percentage point increase in the county relative price ratio due to the sales tax change, per capita food sales decreased by about 1.38 percent. Our estimates indicate that food sales fell in West Virginia border counties by about eight percent as a result of the imposition of the six percent sales tax on food at the beginning of 1990.

Sales Tax Policy Interaction Among the State Governments in India

Although various theoretical as well as empirical studies have emerged to analyze the interjurisdictional tax competition, most of them concern developed nations. This study analyzes the sales tax choice interaction among the State governments in India during 1990–91 to 1998–99. In the first exercise, it uses the effective sales tax rate for 16 States and the Union Territory of Pondicherry and in the second, it uses the actual rates for ten selected commodities in Southern States. In both cases, tax reaction functions are specified and estimated using the panel data methodologies. The results provide strong evidence for the existence of interstate competition in choosing the actual/effective sales tax rates during the study period. The results favor for region and commodity specific tax coordination policies.

Applying the regulatory powers of public health.

The advent of sales over the Internet has led to interesting developments in sales tax policy as states attempt to monitor, control, and collect revenue from illusive Internet tobacco vendors. Tobacco sales have been successfully monitored and regulated, to some extent, in convenience stores, grocery stores, and smoke shops, and in most cases sales taxes are collected. The Internet, however, is extremely difficult to regulate. States could use their regulatory powers to ban the sale of products such as tobacco and alcohol over the Internet, but enforcement would be nearly impossible.The issue of enforcement of Internet sales is extremely difficult. Keeping the products out of the wrong hands, under aged children for example, is difficult. Also, it is difficult in terms of tax policy.

THE SALES TAX AND ELECTRONIC COMMERCE: SO WHAT'S NEW?

This paper takes a pragmatic look at the appropriate sales tax policy for the Information Highway, composed of Internet/on-line service providers, content, hardware/software, and telecommunications...

State Sales Tax Policy in a Changing Economy: Balancing Political and Economic Logic Against Revenue Needs

Soon after implementation in the 1930s, the general sales taxes emerged as the largest state tax source. In 1990, income taxes produced nearly as much state revenue as did sales taxes. Although income tax revenue have increased significantly, the sales tax is not in jeopardy of being replaced in the immediate future. The sales tax still remains a vital state fiscal concern, particularly to those states without a broad individual income tax.

Sales Tax Policy and Administration : Important Changes

Sales Tax Policy and Administration : Important Changes