Sales Tax Rates Research Articles

Potentials and Perils of E-Business in China

The E-business market in China is growing at an exponential rate. In 2013, the business volume is expected to reach $285 billion which surpasses the level in the U.S. As a result, there is a gold rush to China to participate in the market. This article discusses the potential but also points out the perils. This paper also focuses on the competition in the Chinese E-business market, and reveals that the Chinese online business is almost completely monopolized by only one seller, Taobao, which accounts for 81.2% of the whole E-business market. This article further considers the tax burden of the Internet commerce transaction which found that the Chinese government imposes a value-added tax at a rate of 17%. This rate is much higher than the sales tax rate at 7% in the U.S. Additionally, this article investigates the problem of counterfeited products and infringement of intellectual property rights. It discovered that this problem is rampant in China. The losses in international trade amount to $360 billion a year. Eighty percent of the counterfeited products were originated in China. The problem is extremely serious. Moreover, this article offers many planning strategies for operating an E-business in China. Despite the perils, this article concludes that the benefits of running an E-business in China outweigh the risks.

Tax avoidance and business location in a state border model

Previous studies have struggled to demonstrate that higher taxes deter business activity. We revisit this issue by estimating the effect of changes over time in cross-border differences in state tax conditions on the tendency for new establishments to favor one side of a state border over the other. Identification is enhanced by taking account of previously overlooked reciprocal agreements that require workers to pay income tax to their state of residence as opposed to their state of employment. When reciprocal agreements are in force, higher personal income tax rates lure companies from across the border, while corporate income tax and sales tax rates have the opposite effect. Where reciprocal agreements are not in place, the results are largely reversed. These patterns are amplified in heavily developed locations, and differ in anticipated ways by industry and corporate/non-corporate status of the establishment. Overall, results strengthen the view that state-level tax policies do affect the location decisions of entrepreneurs and new business activity, but not in a way that lends itself to a one-size-fits-all summary.

A Survey of Sales Tax Exemptions in the States: Understanding Sales Taxes and Sales Tax Exemptions

We analyze the choice politicians face when seeking votes from groups that lobby for sales tax rate decreases or from groups that lobby for certain tax exemptions, given the constraint that each politician wants to raise a certain amount of revenue. Using the application of sales taxes and sales tax exemptions we develop a model predicting a positive relationship between the number of sales tax exemptions and the sales tax rate. We find support for this hypothesis. A one-unit increase in the number of exemptions is associated with an increase between 0.10 and 0.25 percent in the sales tax rate. Our results provide one explanation of why estimates of revenue increases generated by a sales tax increase are often too optimistic.

The Political Economy of Sales Taxes and Sales Tax Exemptions

We analyze the choice politicians face when seeking votes from groups that lobby for sales tax rate decreases or from groups that lobby for certain tax exemptions, given the constraint that politician wants to raise a certain amount of revenue. Using the application of sales taxes and sales tax exemptions we develop a model predicting a positive relationship between the number of sales tax exemptions and the sales tax rate. We find support for the hypothesis that there is an equilibrium relationship between tax rates and exemptions. We find that a one-unit increase in the number of exemptions is associated with an increase between 0.10 and 0.25 percent increase in the sales tax rate.

Lost in America: Evidence on Local Sales Taxes from National Panel Data

This paper studies comprehensive national panel data of local option sales taxes at the monthly frequency. I calculate state-by-month population weighted averages of local sales tax rates. I document ten stylized facts concerning the time series patterns and spatial dynamics of local sales taxes. The paper then considers a “tax system” approach to tax competition where states compete on a variety of margins that are often ignored by the standard focus on tax rates. Using the state-by-month averages, I find a significant association between one state’s tax system and its neighboring states’ tax systems.

Lost in America: Evidence on Local Sales Taxes from National Panel Data

This paper studies comprehensive national panel data of local option sales taxes at the monthly frequency. I calculate state-by-month population weighted averages and standard deviations of local sales tax rates. I document ten stylized facts concerning the time series patterns and spatial dynamics of local sales tax rates. The paper then proposes a “tax system” approach to tax competition where states compete on a variety of margins -- including restrictions on localities' tax setting authority -- that are often ignored by the standard focus on tax rates. Using spatial panel data techniques and the state-by-month population weighted averages, I find a significant association between one state's tax system and its neighboring states' tax systems.

Provincial Tax Rate Adjustments in Canada

Changes to tax rates are important fiscal events in Canada. They affect the amount of taxes that Canadian households and businesses pay to governments, and the level of economic activity by affecting incentives to work, save, and invest. Thus it is important to understand what factors cause governments to increase or reduce their tax rates.A recent study by Ergete Ferede, Bev Dahlby, and Ebenezer Adjei sheds some light on some of the factors that determine the timing and direction of tax rate adjustments by provincial governments. The main conclusions from the study are: A province’s fiscal position affects the direction and timing of its tax policy:• Provincial governments that start with higher corporate, personal, and sales tax rates are more likely to cut, and less likely to raise, their tax rates.• A higher provincial budget deficit reduces the probability of a corporate tax rate cut and raises the probability of a sales tax rate increase. • An increase in the provincial corporate income tax rate is more likely in a year in which the provincial government raises its personal income tax rate and vice versa.

The Timing and Direction of Statutory Tax Rate Changes by the Canadian Provinces

Tax rate changes are some of the most significant and far-reaching decisions a government can take. A good understanding of the odds of any such changes is essential for any business debating the timing and location of investments. This paper investigates the factors that affect the timing of statutory tax rate changes by Canadian provincial governments. The authors develop a simple theoretical model to explain the “stickiness” of tax rates — the factors that lead a province to decide against tinkering with the tax system — based on the presence of fixed costs of adjusting tax rates. The results indicate that if the current rate falls within a range of tax rates bracketing the optimal rate, then the government will not adjust its tax rate because the cost of the reform outweighs the potential benefits. To build up a body of evidence, this paper employs a multinomial logit model to examine the likelihood of changes to personal income tax (PIT), corporate income tax (CIT), and provincial sales tax (PST) rates by provincial governments over the period 1973-2010. Regression results indicate that provincial governments that start with higher tax rates are more likely to cut, and less likely to raise, their tax rates. A higher provincial budget deficit reduces the probability of a CIT rate cut and raises the probability of a PST rate increase. Party ideology seems to matter. Provinces with left-leaning governments are less likely to cut PIT and PST rates, and more likely to raise PIT rates compared to non-left-leaning governments. The authors also find that a federal PIT rate cut raises the probability of a provincial PIT rate increase, whereas a federal CIT rate cut raises the probability of a provincial CIT rate reduction.

The effect of incentives and technology on the adoption of electric motorcycles: A stated choice experiment in Vietnam

Many Asian cities are experiencing rapid growth in the ownership of personal gasoline-powered motorcycles, a shift away from relatively low-emitting modes of transportation that is contributing to deteriorated air quality. Electric two-wheelers have the potential for significant air pollution reductions as an alternative to gasoline-powered motorcycles; however, they have yet to penetrate many Asian markets. While previous research has examined the adoption of cleaner alternatives to gasoline-powered automobiles (e.g., hybrid electric cars), similar work on motorcycle alternatives is lacking. This study uses a stated preference survey of households in Hanoi, Vietnam to analyze adoption of electric two-wheelers, while focusing on the effects of economic incentives (e.g., differential sales taxes and fuel prices) and technological improvements (e.g., more efficient batteries). A choice model is estimated and market shares are calculated for scenarios involving different levels of electric two-wheeler technology, gasoline prices, and sales tax rates. Results indicate that technological improvements and economic incentives, particularly sales taxes, have significant effects on adoption.

The Effect of State and Local Sales Taxes on Employment at State Borders

This paper estimates the effect of sales taxes on employment at state borders using county-level quarterly data and a newly developed data set of local tax rates. Sales tax increases, relative to cross-border neighbors, lead to losses of employment, as well as payroll and hiring, but these effects are only found in counties with large shares of residents working in another state. The effects also represent an upper-bound, largely driven by employment shifting across the state border. We also find that employment in food and beverage stores is negatively affected when cross-border neighbors adopt low sales tax rates on food.

The Internet as a Tax Haven?: The Effect of the Internet on Tax Competition

High Internet penetration puts downward pressure on tax rates as jurisdictions seek to reduce revenue leakage to tax-free sales; but, taxable online sales will put upward pressure on tax rates because the Internet facilitates tax collection. I find that an increase in Internet penetration induces large municipalities on the low-state-tax side of state borders to lower their local tax rates by more than municipalities on the high-state-tax side. I then use panel data on all local sales tax rates in the country and changes in Internet subscription rates to show that the effect of Internet penetration changes is negative.

Venture migration: a quest for a low-hanging fruit?

Venture migration, in addition to firm entry and exit, affects business stock in a region. This study draws on mainstream entrepreneurship and economic geography literatures to explore the factors explaining net venture migration. Using a data-set on 88 Ohio counties during 2000–2006, it suggests that venture migration is largely a quest for a low-hanging fruit. Relocating firms are drawn to areas with higher sales tax rates that give them access to interest-free financing, higher unemployment rates and better-qualified workforce as well as ample arbitrage opportunities. At the same time, innovative opportunities do not attract migrating ventures.

Equity Versus Efficiency in the Design of the Tax Mix

It is frequently argued that it would be beneficial to move the tax mix towards greater reliance on consumption taxes, with offsetting reductions in income taxes. Proponents argue that this would increase the incentives to “work, save, and invest” and would help improve productivity growth. However, these claims rest on weak foundations and are not well supported by empirical evidence. Most studies have found that reducing personal income tax rates would have only a modest impact on labor supply and work effort. It is a fallacy to suppose that consumption taxes do not reduce work effort simply because they are not levied directly on income. The primary purpose of working is to earn income to spend. A higher consumption tax rate also reduces real after tax income, and dollar for dollar would have the same effect on the incentive to work as a flat income tax. In addition, when a higher sales tax rate is applied to services, it increases the incentive for “do-it-yourself” work to replace purchased services, which can range all the way from gardening to self-representation in court. This also leads to lower national productivity. The evidence that taxes have a significant impact on saving is also quite weak. In the case of people who are aiming for a certain level of investment income after retirement, a lower real after-tax rate of return on their investments forces them to increase their saving rate. Therefore, an income tax cut could have the perverse effect of reducing the national savings rate. Even if lower taxes did increase personal saving, it would be unlikely to have a significant impact on capital investment by Canadian corporations. The primary source of capital is from retained earnings, which are more than adequate for this purpose. A substantial portion of personal portfolio investment in stocks goes to foreign countries. By far the largest and clearest impact of changing the tax mix is on the distribution of income. Canada's GST is not a very regressive tax, as it has been offset by credits for low income people, and exempts basic necessities such as groceries and rent. However, unlike the GST, personal income taxes are highly progressive. Any shift in the tax mix away from income towards consumption taxes would therefore significantly reduce the overall progressivity of Canada’s tax system. In Canada, analysis of this issue has not placed much emphasis on fairness in taxation. In the United States, by contrast, leading legal scholars of taxation such as Barbara Fried, Alvin Warren and Reuven Avi-Yonah have viewed the policy question of fairness as central to the issue. The most credible estimates from economic models indicate at best a small positive impact on economic efficiency from changing the tax. Therefore, the positive impact on income would be too small to compensate most taxpayers, and middle income earners in particular are likely to be net losers from changes in the tax mix. Designing changes in the tax mix so as to make everybody better off is a complex task.

Sales Tax Collections in Nonmetropolitan Communities

Small communities sometimes increase their local sales tax rate in order to maintain or expand public services. The question addressed here is what is the net effect of changing sales tax rates on revenues from sales taxes? Using both semiparametric and nonparametric regression, we find retail sales to be mostly unaffected by sales tax rates as long as the local rate is less than 4 percent. At rates higher than 4 percent, however, there is a severe reduction in sales, yet not enough that sales tax revenues would decrease with increased rates. For a penny increase in sales tax rates from 4 cents, a city can expect their revenues to go up 0.86 cents according to the semiparametric model and 0.74 cents according to the parametric model.

Inter-Federation Competition: Sales Tax Externalities with Multiple Federations

Local sales tax rates influence the location of retail activity. This paper develops a theory and empirical identification strategy for studying sales tax competition with “multiple federations,” as exemplified by multiple counties each containing several cities. In addition to strategic interactions with nearby cities and a city’s own county, city tax rates are influenced by the tax rates of neighboring counties. Cities react heterogeneously to own-county sales tax rates depending on distance to the county border. Using data on the driving time to county borders and a comprehensive cross-section of local sales tax rates, I exploit variation in proximity to county borders to identify vertical fiscal competition. Cities located near county borders react more intensely to their county’s tax rate in comparison to towns at the interior. An increase in the neighboring county tax rate raises city tax rates in nearby counties.

Smoke Gets in Your Eyes: Cigarette Tax Salience and Regressivity

Recent evidence suggests consumers pay less attention to commodity taxes levied at the register than to taxes included in a good's posted price. If this attention gap is larger for high-income consumers than for low-income consumers, policymakers can manipulate a tax's regressivity by altering the fraction of the tax imposed at the register. We investigate income differences in attentiveness to cigarette taxes, exploiting state and time variation in cigarette excise and sales tax rates. Whereas all consumers respond to taxes that appear in cigarettes' posted price, our results suggest that only low-income consumers respond to taxes levied at the register. (JEL D12, H22, H25, H71, L66)

The Effect of State and Local Sales Taxes on Employment at State Borders

This paper estimates the effect of sales taxes on employment at state borders using county-level quarterly data and a newly developed dataset of local tax rates. Sales tax increases, relative to cross-border neighbors, lead to losses of employment, as well as payroll and hiring, but these effects are only found in counties with large shares of residents working in another state. The effects also represent an upper-bound, largely driven by employment shifting across the state border. We also find that employment in food and beverage stores is negatively affected when cross-border neighbors adopt low sales tax rates on food.

State and local tax competition in a spatial model with sales taxes and residential property taxes

This paper presents a theoretical model with a uniformly populated line that is divided into local jurisdictions (and/or states). If one level of government imposes sales and residential property taxes, and if the spatial extent of each taxing jurisdiction is positive and finite, then (in Nash equilibrium) the sales tax rate is less than residential property tax rate, housing consumption is suboptimal, and the public good is underprovided in each jurisdiction. If a very large state (or country) is divided into local jurisdictions, and if both levels of government choose tax rates endogenously, then under some assumptions there is an efficient outcome.

A Regional Computable General Equilibrium Analysis of Property Tax Rate Caps and a Sales Tax Rate Increase in Indiana

We use a regional computable general equilibrium (CGE) model and Indiana data to examine both the short-run and the long-run effects of property tax rate limits and an increase in the sales tax rate. We find that the property tax caps and sales tax rate increase have a relatively small impact on aggregate economic measures in the short run and a positive effect in the long run. Higher-income households experience larger increases in income than lower-income households in terms of the dollar amount of the increase, but lower-income households experience larger gains as a percentage of labor income. The value of output (sales) increases in the long run with construction, certain manufacturing industries, and wholesale trade experiencing the largest increases.

THE EFFECT OF SALES TAXES ON EMPLOYMENT: NEW EVIDENCE FROM CROSS-BORDER PANEL DATA ANALYSIS

This paper estimates the effect of sales taxes on employment using county-level quarterly data and a “border approach,” comparing employment changes for counties in states that raised sales tax rates with their cross-border neighbors. We augment standard distance-related border measures with an economically-oriented border measure based on the share of county residents who work in a neighboring state. We fi nd that the employment effects are larger in the retail trade industry and for female workers, and that they are concentrated in counties with relatively large shares of residents working in another state.