Tax News
Report: "Amazon Taxes" Will Worsen Budget Problems, Deter Business
Expansive Nexus Standards Burden Interstate Commerce, Harm Economic Growth
Washington, DC, March 8, 2010 -- As more states consider enacting so-called "Amazon tax" laws to force online retailers to collect sales taxes, a new Tax Foundation report cautions that such policies would not only fail to relieve short-term budget problems but also hurt long-term economic growth.
New York, Rhode Island, North Carolina and Colorado have Amazon taxes, and the Multistate Tax Commission last week indicated its plans to draft model legislation based on the laws in place in those states.
"Enactment of an Amazon tax is an aggressive and unconstitutional assertion of state power," said Joseph Henchman, the Tax Foundation's Tax Counsel and Director of State Projects, who authored the report. "These taxes are the latest in a series of efforts to eliminate the long-standing 'physical presence' standard and replace it with a nebulous, arbitrary 'economic presence' standard, where businesses can be taxed in every state where they have customers - meaning retailers large and small must track more than 8,000 sales tax rates and bases."
"This flies in the face of the argument that Amazon taxes 'level the playing field' between brick-and-mortar and Internet-bases businesses," Henchman said.
Tax Foundation Special Report, No. 176, "'Amazon Tax' Laws Signal Business Unfriendliness and Will Worsen Short-Term Budget Problems," is available online at http://www.taxfoundation.org/publications/show/25949.html.
Amazon taxes (also known as affiliate nexus taxes or affiliate taxes) require retailers that have contracts with "affiliates" -- independent persons within the state who post a link to an out-of-state business on their website and get a share of revenues from the out-of-state business -- to collect the state' sales and use tax. Even groups such as the National Conference of State Legislatures and the Streamlined Sales Tax Project oppose Amazon taxes.
Amazon taxes are unlikely to produce revenue in the near term, according to the report. New York continues to face a lengthy legal constitutional challenge, and Rhode Island has even seen a drop in income tax collections due to the law.
Unconstitutionally expansive nexus standards such as Amazon tax laws threaten interstate commerce and the national economy by discouraging business expansion.
"The real concern should be the extent of state powers," Henchman said. "Should states be able to reach beyond their geographic borders and impose their tax system on everything everywhere? Do we really need to make sure that taxes are the same in all states, and that people can't shop by tax rates as they shop by price, quality or convenience?"
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.
Hiring Protection From The IRS
U.S. Sales Tax Rates Hit Record High
Tax Foundation Testifies on Maryland Tax Bills
House Ways and Means Committee Hearing Focuses on Inflation-Adjusted Income Tax Brackets, Treatment of Retirement Income, Estate Taxes and Property Tax Assessments
Washington, DC, March 4, 2010 -- Tax Foundation Economist Kail Padgitt, Ph.D., will address four pieces of legislation being considered by Maryland's House Ways and Means Committee at a hearing scheduled for 1 p.m. today:
- HB 238, the Taxpayer Protection Act, would index state personal income tax brackets based on the annual change to the Consumer Price Index, creating stability within the tax code in terms of economic purchasing power and preventing "bracket creep."
- HB 300, the Fairness in Taxation for Retirees Act, would equalize the way the tax code treats retirement income from pensions and non-pension plans.
- HB 312, the Family Property Protection Act, would recouple Maryland's estate tax with increases in the federal estate tax exclusion, reducing compliance costs associated with the tax.
- HB 366, the Homeowners' Property Tax Assessment Cap Reduction, would cap annual state property tax assessment increases at 5 percent instead of 10 percent, which would give a tax cut to people whose property appreciates rapidly.
Padgitt's full testimonies are available online: HB 238, HB 300, HB 312, HB 366.
"Maryland taxpayers have for years been hit by a hidden tax increase each year as inflation pushes them into higher tax brackets," Padgitt said. "The Taxpayer Protection Act would make sure Marylanders don't pay higher income taxes unless their purchasing power actually increases."
"Equalizing treatment of retirement accounts, as HB 300 does, would eliminate the distortive effects of tax incentives favoring pensions over other types of retirement income, and it would reduce tax code complexity as well," he said. "Meanwhile, recoupling Maryland's estate tax with increases in federal estate tax exclusions under the Family Property Protection Act would provide Marylanders the benefit of reduced compliance costs. Finally, lowering the cap on state property tax assessments under HB 366 would shift property tax burdened from people whose property values soar to people whose property values increase more modestly or fall."
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.
Taxpayer Alert: 1099 Traps Multiply This Year
Report: Rendell Budget Burdens Business, Increases Spending
Pennsylvania Governor Proposes Broadening Sales Tax Base and Lowering Rate, Reducing Corporate Income Tax Rate, Eliminating Cap on Net Operating Loss Carry-Forwards
Washington, DC, February 26, 2010 -- Pennsylvania Gov. Ed Rendell's $66.4 billion budget contains some sound tax policy reforms, but it also boosts spending and relies on one-time money, out-of-state businesses and the federal government, according to a new Tax Foundation report.
"Pennsylvania is one of the states that last year used one-time stimulus money to backfill their budgets, postponing meaningful steps to prioritize public expenditures," said Tax Foundation Director of State Projects Joseph Henchman, who authored the report. "As a result, the state now faces a built-in multi-billion dollar annual budget gap from those disappearing federal revenues. Governor Rendell proposes using tax increases to bridge that gap, but even those aren't enough to completely close it or address future budgets."
Tax Foundation Fiscal Fact, No. 213, "Pennsylvania Governor Proposes Spending Boost, Broader Sales Tax, Heavier Business Taxes," is available online at http://www.taxfoundation.org/publications/show/25905.html. The significant tax proposals in Rendell's budget include:
- Broadening the state sales tax and lowering the rate from 6% to 4%. The change would eliminate many unjustified exemptions (while retaining the largest unjustified exemptions: most groceries, clothing, legal and medical services) but would double-tax some retail items by taxing business-to-business transactions. The change would be a net revenue increase despite the rate reduction, raising $531 million in FY 2011 and nearly $900 million in FY 2012.
- Eliminating sales tax vendor compensation, which would raise $76 million in FY 2011.
- Reducing the corporate income tax rate from 9.99% to 8.99% and eliminating the cap on net operating loss carry-forwards, but imposing combined reporting and single-sales factor apportionment. The net result of this package of positive and negative reforms (which are expected to raise $66 million in FY 2011 and $167 million in 2012) would be an increase in business tax burdens, particularly for out-of-state businesses.
- Imposing a new severance tax on natural gas extraction, which would raise $161 million in FY 2011.
- Seeking federal aid by increasing unemployment benefits and exploiting the federal Medicaid matching fund system.
"Some of the governor's proposals -- such as broadening the sales tax while lowering the rate, uncapping losses that businesses can deduct and lowering the corporate income tax rate -- are moves in the right direction, but the budget also boosts spending significantly, relying on one-time money, out-of-state businesses, and the federal government to do so," Henchman said. "Without reprioritizing expenditures, slowing the rate of state spending, and meaningfully addressing the state's structural deficit, Governor Rendell may have difficulty selling his proposal to legislators and the people of Pennsylvania."
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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Tax Foundation Fiscal Fact, No. 213, "Pennsylvania Governor Proposes Spending Boost, Broader Sales Tax, Heavier Business Taxes," is available online at http://www.taxfoundation.org/publications/show/25905.html. To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.
Trade Properties To Keep The Tax Man At Bay
IRS: Methane Tax Credits Full Of Gas
Miami Vice: Homebuyer Tax Credit Fraud Alleged
Planning For The Estate Tax's Return
Small Business Needs IRS Relief
Avoiding Tax Scams
Ten Tax Protestor Claims To Avoid
Report: Recession Offers Georgia Opportunity for Tax Reform
Legislators Should Avoid Targeted Tax Increases, Instead Implement Reforms Based on Sound Tax Policy
Washington, DC, February 19, 2010 -- Georgia lawmakers are mulling tax increases and gimmicks to plug a projected budget gap of more than $2 billion, but a new Tax Foundation report cautions against such tactics and urges tax reform that will stabilize revenue.
Eliminating targeted tax incentives, lowering the state corporate income tax rate and moving to a flat personal income tax rate would improve Georgia's tax system, according to the report, Tax Foundation Fiscal Fact, No. 212¸ "Georgia Should Respond to Recession with Tax Reform, Not Tax Gimmicks."
"Cutting useless incentives, broadening bases, and lowering rates will make Georgia more competitive, less distortionary, and save the state money," said Tax Foundation Policy Analyst Justin Higginbottom, who authored the report. "Georgia should focus on emerging from this recession with a better tax system."
In the Tax Foundation's 2010 State Business Tax Climate Index, which measures the business-friendliness of states' tax systems, Georgia ranks close to the middle nationally but worse than four of its five neighboring states. Georgia residents pay the 16th-highest state-local tax burden in the country, 9.9% of all income earned in the state, and higher than all of its neighbors.
Repealing tax incentives, which cost the state $265 million from 2004 to2006, would create a more attractive climate for all business and help fill the budget gap. One example is the state's film tax credit program, which fail to live up to their promises of job creation and economic growth at a real cost to the state.
While Georgia's corporate income tax rate of 6% is about average nationally and regionally, when combined with the federal tax rate of 35%, it's higher than almost any country in the world. Georgia also is one of 22 states that also have a tax on the net worth of business, called a net worth or capital stock tax. Georgia is one of only 10 states that have a tax on business' inventory. Lowering the corporate income tax rate and repealing the state's inventory and net worth tax would improve the state's tax climate.
Georgia's average state and local sales tax of about 7% is 17th-highest nationally and on par with its neighbors, but expanding the sales tax base to include groceries and services would allow for the overall rate to be lowered without sacrificing revenue. Lawmakers should avoid targeted tax hikes on products such as tobacco and other "sin taxes." A recent Tax Foundation report found that cigarette taxes burden low-income taxpayers and benefit high-income residents.
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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Tax Foundation Fiscal Fact, No. 212¸ "Georgia Should Respond to Recession with Tax Reform, Not Tax Gimmicks," is available online at http://www.taxfoundation.org/publications/show/25871.html. To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.
Eliminating Tax Deferral Would Make U.S. Less Competitive Internationally
New Tax Foundation Report Compares Worldwide, Territorial Systems of Corporate Taxation, Emphasizes Need for Lower Federal Corporate Income Tax Rate
President Obama's recently released budget reemphasizes the administration's goal to curtail tax deferral for income earned abroad by American businesses, but a new Tax Foundation study argues that this would harm U.S. competitiveness in low-tax countries.
The study is Tax Foundation Special Report, No. 174, "The Importance of Tax Deferral and A Lower Corporate Tax Rate," and is written by Tax Foundation Senior Fellow Robert Carroll, Ph.D.
"Eliminating deferral under our current worldwide system of taxation would immediately subject all foreign earnings of American multinational companies to the high federal corporate tax rate and reduce competitiveness abroad," Carroll said. "On the other hand, a territorial tax system - one that would exempt foreign income from U.S. tax - would have distortionary effects on business decisions such as locating income and expenses. In both cases, a lower federal corporate tax rate would help offset the negative consequences."
Currently, the U.S. system for taxing foreign earnings blends aspects of both a worldwide and territorial system. U.S. multinational corporations are taxed on their worldwide income, but active earnings are not taxed until repatriated to the U.S., minus credits claimed for foreign taxes paid. Reforming the corporate tax system requires balancing neutrality between foreign and domestic production with international competitiveness, Caroll notes.
"We do not want our tax law to favor foreign production over domestic production, and at the same time we do not want to put U.S. companies with foreign operations at a disadvantage when they compete abroad with foreign companies," he writes.
According to the report, the United States is the only large economy that taxes corporate income worldwide with a tax rate exceeding 30 percent. During 2009, both Great Britain and Japan enacted territorial systems, giving their multinational companies a major tax advantage over U.S.-based firms that are saddled with a worldwide system. Over 80 percent of developed nations now have territorial systems.
Lowering the corporate tax rate to the average that prevails among our major trading partners, for a combined federal-state rate of roughly 25 percent (implying a federal corporate tax rate of 20 percent), would be a reasonable upper-bound.
Carroll notes that such a reduction in the corporate rate could not be financed entirely within the corporate tax base, meaning that there would need to be a rebalancing between the individual and business sides of the income tax. Given the increased capital mobility in a globalized economy, this could be a positive change.
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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Tax Foundation Special Report, No. 174¸ "The Importance of Tax Deferral and A Lower Corporate Tax Rate," is available online at http://www.taxfoundation.org/news/show/25842.html. To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.
IRS 400 Suggests Path To Forbes 400
What Taxes Will States Turn To Next?
High-Income Counties Benefit Most from Georgia Tobacco Tax, Study Shows
Wealthier Cobb-Douglas, Fulton Health Districts Receive Highest Amount in State Spending Services for Every Dollar in Cigarette Taxes Paid
Washington, DC, February 18, 2010 -- Georgia's tobacco tax benefits high-income counties the most by transferring funds to them in the form of state services from lower-income areas, according to a new Tax Foundation report. Residents of the Cobb-Douglas health district, whose incomes are 20 percent higher than elsewhere in the state, received $1.29 in state services for every $1 its residents paid in cigarette taxes, for a total transfer of $4.2 million.
In the Fulton health district, where the average income is 60 percent higher than in the rest of the state, residents received $1.26 for every $1 in cigarette taxes paid, for a total transfer of $4.7 million. Georgia's cigarette tax rate is 37 cents per pack.
"Because tobacco tax revenue in Georgia goes into the state's general fund, providing benefits to residents in the same proportions as other general fund money, we know that the cigarette tax transfers funds from areas with high smoking rates to those with low smoking rates," said Tax Foundation Chief Economist Patrick Fleenor, who authored the report. "The areas in Georgia with the highest smoking rates, such as the Northwest and North Georgia health districts, have lower-than-average incomes, while the areas with the lowest smoking rates, such as the Cobb-Douglas and Fulton health districts, have high average incomes."
Tax Foundation Fiscal Fact, No. 211¸ "Georgia Tobacco Tax Favors High-Income Counties," is available online at http://www.taxfoundation.org/publications/show/25864.html.
The Northwest health district loses the most in the funds transfer: Its residents received 78 cents in benefits for every $1 paid in cigarette taxes, for a total loss of $3.8 million. The next-biggest "loser" was the North Georgia health district, whose residents received 82 cents for every $1 in cigarette taxes paid, for a total loss of $2.1 million.
In some counties, such as those in the North, West, Central and East Metro health districts, spending is roughly equal to cigarette tax revenue.
"Cigarette taxes are extremely regressive, taking a much higher percentage of income among the poor," Fleenor said. "The 20 percent of Georgia residents who earn the least shoulder a tobacco tax burden 18 times greater, as a percentage of income, than the tax burden of the 20 percent of residents who earn the most."
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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Tax Foundation Fiscal Fact, No. 211¸ "Georgia Tobacco Tax Favors High-Income Counties," is available online at http://www.taxfoundation.org/publications/show/25864.html. To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.
Florida Sales Tax Holiday, Film Tax Credit Plans Won't Deliver on Promises
Tax Foundation Report Outlines Why Back-to-School Sales Tax Holiday, $75 Million Film Tax Credit Program Are Poor Tax Policy
Two plans in Florida to implement a back-to-school sales tax holiday in August and expand its film tax credit program to $75 million will fail to live up to promises of significant tax relief and economic growth, according to a new Tax Foundation report.
"Sales tax holidays are politically popular and allow lawmakers to claim they're cutting taxes and boosting sales, when in reality, the minimal tax relief is only temporary, and purchases are simply shifted from other times of the year," said Tax Foundation Staff Economist Mark Robyn, who authored the report. "Similarly, film tax credits provide for good photo-ops featuring movie stars and politicians touting job creation, but the programs simply lead to a bidding war among states to see who can offer Hollywood the most generous handouts."
Tax Foundation Fiscal Fact, No. 210, "Florida's Sales Tax Holiday and Film Tax Credit Proposals Will Not Deliver on Exaggerated Promises," is available online at http://www.taxfoundation.org/news/show/25850.html.
The August sales tax holiday plan would exempt clothing, footwear, books and school supplies from the state sales tax. The vast majority of increased purchases during the sales tax holiday period are simply shifted from other weeks and provides no overall economic benefit, according to the report.
"If lawmakers want to provide real, permanent tax relief for Floridians, they should cut the sales tax rate year-round rather than relying on political gimmicks such as sales tax holidays," Robyn said.
The film tax credit proposal would expand the current $10.8 million incentive program to $75 million, a nearly sevenfold increase. As the bidding war continues among states, Florida will be forced again to redouble their efforts to lure film productions.
"This strategy, which amounts to corporate welfare for film producers and movie stars at the expense of the rest of Florida's taxpayers, is simply not a sustainable approach to economic development," Robyn said. "A state's tax code should serve as a 'welcome mat' for all industries instead of providing 'Hollywood treatment' for some."
Robyn also noted that the jobs "created" during film production are usually temporary with limited upward mobility, and the economic benefits of film incentives are greatly exaggerated. A recent study by the Pennsylvania Legislative Budget and Finance Committee found that the state's $75 million program provides a net economic benefit of $4.5 million only when they assume that the entire industry, even those productions not receiving tax credits, wouldn't exist without the program.
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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Tax Foundation Fiscal Fact, No. 210, "Florida's Sales Tax Holiday and Film Tax Credit Proposals Will Not Deliver on Exaggerated Promises," is available online at http://www.taxfoundation.org/news/show/25850.html. For more information in sales tax holidays, see Tax Foundation Special Report, No. 171, "Sales Tax Holidays: Politically Expedient but Poor Tax Policy," available online at http://www.taxfoundation.org/publications/show/25052.html. For more information on film tax credits, see Tax Foundation Special Report, No. 173, "Movie Production Incentives: Blockbuster Support for Lackluster Policy," available online at http://www.taxfoundation.org/publications/show/25706.html. To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.
Money For Life: 2010 Tax Guide
