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OBJECTIVE
The objective of this work is to discuss sales tax issues from the viewpoint of both the citizen and the Budget Director. Reviewed will be issues of ‘volatility’, ‘reliability’, and ‘equity’ as well as how the sales tax impacts activities of government such as economic development, community initiatives and service provision. Finally this work will answer the question of whether there are any other taxes or revenue sources to substitute for the sales tax as well as stating why or alternatively why there is not an existing substitute.
Sales taxes are collected at the local and state levels and utilized by the government in service provision to the citizens of the United States.
The United States imposes sales taxes in both state and local administrations in which the customer is charged "...a combined rate which bundles together" (USA Sales Use Tax, 2006) the state tax with the local tax. A merchant is required to charged a sales tax if the business has 'nexus'.
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A 'nexus' is defined as "a substantial physical presence". (USA Sales Use Tax, 2006)
Not all products are subject to the sales tax and different states exempt difference products. Sales taxes are applied on the "end purchase" of goods in retail sales. Economic development has been defined as "a multi-faceted approach to the development of policies and programs designed to preserve, enhance and promote a vibrant and successful business community." (Economic Development Action Program, 2005)
The health and success of the businesses in communities are stated to be "...directly linked to the quality of life experienced by residents in that community" (Economic Development Action Program, 2005) which is of primary importance to the entire city or municipality.
Creation of jobs and generation of sales tax revenues "provide a major contribution to fund the initiatives of service provision with the city. The economic development within a city of municipality is greatly dependent on sales tax revenues in most U.S. states.
‘Volatility’ and ‘Reliability’ are the two primary considerations of a budget director when revenues raised by taxes are spent on new initiatives. Hirsch et al state that Reliability and Volatility are that which marks the outcome of the question which asks: “Are new revenues raised by the taxes relatively stable over time or are they excessively volatile and difficult to predict? It is a fact that generation of revenues from sales taxes may be unpredictable since these revenues are greatly dependent on seasonal factors and economic conditions therefore, merchants may experience a really great Christmas hence the sales tax revenues for the government will be great as well however, a lean year for merchants will also result in the coffers of the government for spending in economic development being quite thin as well. In a journal article relating to the impact of sales tax on the economy of the state of California it is stated that:
“If times are good and consumption is high, there will be more revenue from sales taxes than otherwise. If times are bad and layoffs and unemployment are up, personal income taxes will be reduced. Some taxpayers will lose their jobs or not have opportunities to work overtime.
Sluggish economic activity will hurt profits and thus collections from corporate income taxes. Similarly, if times are bad, certain kinds of welfare-related expenditures may increase. While the linkage between economic developments and the status of the budget is clear, the actual budget process involves making a forecast of what those economic developments will be. Then budget forecasters must estimate precisely how the assumed developments will affect revenue” (Hirsch, et al, 2004)
The third element is that of 'Equity' which is one of the five principles stated by the National Conference of State Legislatures (NCSL) "that were compiled in 1988 with input from lawmakers and academics. The principle involving 'Equity' along with the other principles for "sound tax policy". The five principles are:
(1) Provision of appropriate revenues (sufficiency, stability, and certainty of revenues produced)
(2) Neutrality;
(3) Equity;
(4) Easy and economical to administer;
(5) accountability –
(i) taxpayers are accountable for payment of their taxes
(ii) tax agencies are accountable for administration and enforcement of the tax laws efficiently and fairly; and
(iii) lawmakers accountable for the integrity of the tax laws. (Hirsch et al, 2004)
III. VIOLATION OF PRINCIPLES IN NEW YORK ECONOMIC DEVELOPEMNT
In a recent testimony before the U.S. Senate in a hearing before the Subcommittee on International Trade of the Committee on Finance earlier this year given by Walter Hellerstein who is said to be: “the nation's leading legal academic authority on state and local taxation” stated is that a New York "economic development incentive to attract sales to the New York exchanges was a "discriminatory tax to the Boston Stock Exchange that viewed the incentive as diverting economic activity from the Boston exchange, a view with which the U.S. Supreme Court concurred." (Testimony of Walter Hellerstein, 2006) Stated as well is that the economic development incentive for its fledging wine industry was a 'discriminatory tax' to sellers of alcoholic beverages produced in other states, a view with which the U.S. Supreme Court concurred." (Ibid)
SUMMARY AND CONCLUSION
Clearly the sales tax scheme or plan of a city or municipality involves the necessary view which is all-inclusive of the factors that will impact the revenues realized from sales taxes and as well are able to realize the volatility or alternatively the reliability of the sales tax revenues in the budget plan. Then the comprehension of the sales taxes as they affect the individuals within the community both from the advantages of the economic development in the community as well as the impact the increase of sales tax will have on the spending habits in times that are characterized by layoffs and unemployment in the area.
Finally it must be comprehended that all of this is inherently linked in the planning of sales taxes, city budgets and economic development in that economic development works to ensure a healthy and quality lifestyle for the taxpayers that reside in the community, and as well that economic development furthers the growth of businesses and employment within the community.
These successful individuals and households within the community in turn replenish the community or city coffers with the sales taxes on the purchases that they make in the community thereby funding even more economic development in the community. Last, the principles that have been reviewed in this research as set out by the National Conference of State Legislatures (NCSL) must be followed in order to avoid the situation that the economic development initiatives in New York and Hawaii experienced in being found in violation of those principles by the U.S. Supreme Court.
WORKS CITED
Testimony of Walter Hellerstein before the U.S. Senate; Hearing before the Subcommittee on International Trade of the Committee on Finance (2006) Online available at: http://64.233.161.104/search?q=cache:EnVhxxKAqIYJ:www.law.uga.edu/news/advocate/spring2006/hellerstein.pdf+seconomic+development:+sales+tax+issues&hl=en&gl=us&ct=clnk&cd=17
Economic Development Action Program (2005) City of Bothell nd Online available at: http://www.ci.bothell.wa.us/dept/CM/EconDev/ActionProgram.html
"One Taxpayer's Economic Development Incentive Is Often Another's Discriminatory Tax".(Advocate: Spring/Summer 2006 Online available at: http://64.233.161.104/search?q=cache:EnVhxxKAqIYJ:www.law.uga.edu/news/advocate/spring2006/hellerstein.pdf+seconomic+development:+sales+tax+issues&hl=en&gl=us&ct=clnk&cd=17
Hirsch, Werner A. et al (2004) Making California’s State Budget
More User-Friendly And Transparent Online available at: http://www.spa.ucla.edu/calpolicy02/HirschEtc.pdf
USA Sales Use Tax, (2006) http://www.ustaxnetwork.com/
The Dual Perspectives of Sales Tax: Citizen and Budget Director Viewpoints. (2017, Apr 06). Retrieved from https://studymoose.com/sales-tax-essay
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