Excell Sheet for Calculation Ofsales Tax Payable
History and Economic Impact William F. Fox Professor of Economics University of Tennessee March 13, 2002 This chapter focuses on two basic issues, the history and the economic impact of sales taxes. The chapter is divided into five sections. The first is a brief review of sales taxes and their implementation throughout history. The second discusses the general sales tax’s role in current U.S. state government finance. The third is an examination of the sales tax as a consumption tax, and the other means of taxing consumption. The next section addresses trends in the sales tax base and the factors that have been altering the base. The final section is a discussion of the likely direction of sales taxes in the future. 1. Sales Tax History The imposition of transactions taxes can be found through much of modern civilization (see Buehler, 1940). Tomb paintings depict tax collectors in Egypt at least as early as 2000 BC, and sales taxes on individual commodities, such as cooking oil, can be traced to that time. Egypt, Athens, and Rome were all known to have general sales taxes. Indeed, the Romans were responsible for taking sales taxes to the rest of Europe, including to both Spain and France. Later, Spain had a national sales tax in place from 1342 until the 18th century, with rates that ultimately reached 10 to 15 percent. Specific commodity taxes were so broadly imposed during the U.S. civil war, that when combined, they nearly formed a general sales tax.1 The use of sales taxes by U.S. states dates back at least to the Pennsylvania mercantile license tax that was initially introduced in 1821, though this and other early taxes were not broad-based. Buehler attributes development of modern state sales taxes to the depression era. He credits Kentucky with the first tax levied exclusively on retailers. The initial tax, passed in 1930, was progressive, but was replaced in 1934 with a 3 percent flat rate tax and then was eliminated in 1936. The current Kentucky sales tax
References: Auten, Gerald E., and Eric J. Toder. “Federal Consumption Tax Proposals and the States.” In The Sales Tax in the 21st Century, Matthew N Murray and William F. Fox, ed., Praeger Publishers, Westport, Connecticut and London 1997, pp. 52-64. Buehler, Alfred G. Public Finance. McGraw-Hill Book Company, Inc. New York and London, 1940. John E Due and John L. Mikesell. Sales Taxation: State and Local Structure and Administration. The Urban Institute Press, Washington, D.C. 1995. Ebrill, Liam, Michael Keen, Jean-Paul Bodin, and Victoria Summers. The Modern VAT. International Monetary Fund, Washington, D.C. 2001. Fisher, Ronald C. “Local Sales Taxes: Tax Differentials, Sales Loss, and Revenue Estimates,” Public Finance Quarterly, April 1980, pp. 171-188. Fox, William F. “Tax Structure and the Location of Economic Activity Along State Borders.” National Tax Journal. December 1986, p.387-401. Fox, William F., LeAnn Luna, and Matthew N. Murray. “Issues in the Design and Implementation of Production and Consumption VAT’s for the American States.” State Tax Notes. January 21, 2002, pp.205-212. Fox, William F. and Matthew N. Murray. “Economic Aspects of Taxing Services.” National Tax Journal, March 1988. pp. 19-37. Goolsbee, Austan. “In a World Without Borders: The Impact of Taxes on Internet Commerce.” Quarterly Journal of Economics Vol. 115, No. 2, 2000. Merriman, David and Mark Skidmore. “Did Distortionary Sales Taxation Contribute to the Growth of the Service Sector?” National Tax Journal. March 2000, p. 125-142. Ring, Raymond J. “ Consumers’ Share and Producers’ Share of the General Sales Tax.” National Tax Journal, March 1999, pp. 81-92. 17