Sales Tax Revenue Research Articles

Financing Disaster Mitigation, Preparedness, Response, and Recovery

A disaster can result in severe economic consequences for an afflicted area. State and local monies deplete rapidly, costly liability demands arise in court, and insurance claims increase quickly, placing the community in an unexpected economic crisis. After the May 1983 earthquake in Coalinga, California, the city manager noted: One of the most important things learn about managing an emergency is that costs will skyrocket, and property values will fall, as will sales tax revenues, if there is much damage commercial buildings.' The city manager also stated that, to run the city and pay for the earthquake, knowing about and working with the Federal Emergency Management Agency (FEMA) and the state are most necessary.2 More than 60,000 families suffered the consequences of natural and man-made technological disasters and received federal help in 1983, an average year of major disasters. FEMA responded 21 major disasters declared by President Reagan during the year, which amounted the distribution of more than $1.1 billion.3 The money was used help citizens recover and supplement repair of state and local government facilities. Severe winter storms and flooding in California were the most costly natural disasters requiring federal assistance in 1983 with the federal government paying out an estimated $308 million more than 17,000 families. During the same year, the private insurance industry nationwide paid record damage claims of $1.9 billion.4

STABILITY OF THE STATE SALES TAX INCOME ELASTICITY

Revenue stability for a tax source is defined here as the situation where the income elasticity of revenues is countercyclical; that is, the elasticity rises in a recession and declines in an expansion. A sales tax revenue function is conceptualized in a manner such that the income elasticity is endogenous and a function of the position in the business cycle, the interest rate, and the inflation rate. Short-run income elasticities are then measured based on the economic conditions existing over the past eight years. A varying elasticity model is employed to estimate the revenue function for ten categories of sales. The short-run efosticities shift dramatically over the years, with those for durable goods falling in recessions and rising in expansions, and those for nondurable goods rising in recessions and falling in expansions. The aggregate sales tax elasticity moves in a procyclical fashion, evidencing that the sales tax is unstable. A varying elasticity model is demonstrated to provide improved forecasts over the historical period compared with a constant elasticity model.

Views on transit tax financing in the U.S.

Although much has been written about the economics of transit tax financing, public views and opinions toward alternative tax sources have received comparatively short shrift. This paper examines the attitudes of transit managers as well as other political groups toward various tax sources available for financing transit services in the U.S.A. From a survey of 129 transit officials, state fuel and vehicle registration taxes are found to be the overwhelming favorites. Administrators for large transit properties generally also favor federal income tax financing of transit, while those for smaller agencies seem to rate sales tax revenues relatively highly. Several other studies have likewise shown sales taxes to be preferred by transit officials. With the planned phase-out of federal operating assistance, it is becoming increasingly imperative that authorizing legislation be enacted allowing jurisdictions to dedicate a range of local revenue sources to transit. While perspectives on transit tax financing were found to vary somewhat among vested interests, in general there seems to be more agreement than dissension on which tax sources should be used.

Functional forms and the estimation of a state's sales tax revenue: Tennessee as a case study

Problems of specifying a proper functional form for estimating sales tax revenues of a state are discussed. A general functional form is introduced, in which linear and log-linear forms are special cases. The maximum likelihood approach and data for Tennessee are used to estimate parameters in the general form. Empirical results disclose that the null hypotheses indicating the functional form is linear or log-linear are both rejected. The best functional form obtained from the general form provides not only better R2 and Durbin-Watson statistic, but also generates estimates of sales tax collections with smaller errors than the linear and log-linear forms.

Financing rapid transit—a simulation of cost sharing for extensions to BART

The initial Bay Area Rapid Transit (BART) system was financed largely by bond issues and direct sales tax revenue from the three counties in the San Francisco Bay Area, which the mass transit system now serves. It appears that if further extensions of the BART system into other jurisdictions are to be undertaken, they will be funded largely with federal government subsidies. Hence, only a small portion of the capital costs of any extension will be borne by the residents of that jurisdiction and, therefore, a significant property tax burden inequity will exist between those residents served by the original system and those residents to be served by an extension. If extension of the system into neighboring jurisdictions is undertaken, it is likely that a “sharing rule” or “buy-in rule” will be politically negotiated to equalize this burden. Unfortunately, new jurisdictions to be served by BART cannot evaluate a BART extension, as against other mass transit alternatives, since its total capital cost will involve not only the incremental land acquisition and construction costs, but an unknown cost share amount. This paper reports on the development of a decision support system (DSS) incorporating a simulation-based financial planning model, to assess the impact of various levels of federal support and alternative BART extensions upon the financial resources of the participating jurisdictions, present and potential. The utility of the DSS for planning is illustrated by examining a prominent alternative, the extension of BART to the San Francisco Airport and San Mateo County, under the assumption that the sharing rule will be based upon total assessed property valuation. Aside from its utility as a planning tool, the usefulness of the DSS in this task is further demonstrated by its identification of unforeseen tax burden inequities, which would result from one proposed sharing rule.

Equity Effects and Revenue Potential of Sales Taxation of Services: Some Empirical Findings

This study investigates the effects on sales tax regressivity and revenue productivity when various combinations of consumer services are added to the base. Idaho's commodities-oriented tax structure (which is similar to that of most other states) is the basis of this investigation. Unlike the conventional methods, progressivity-regressivity indices are developed to evaluate the equity effects, and this approach is argued to be superior. Two ability-to-pay measures are adopted for this purpose. Further, the study evaluates the revenue significance of including services in the base. From the standpoints of equity and revenue, the results strongly favor inclusion of service in the sales tax base.

ESTIMATING SALES TAX REVENUE CHANGES IN RESPONSE TO CHANGES IN PERSONAL INCOME AND SALES TAX RATES

This study is concerned with the effects of changes in sales tax rates, per capita personal income, and population upon sales tax revenues. The rate elasticity is found, on the average, to be 93; that is, a 100% increase in the sales tax rate will increase revenue by 93%. Differences in base, with limited available data, do not appear to affect the elasticity significantly. The income elasticity is found to be less than one, while the population elasticity is found to be highly variable, but in some instances in excess of one.