Taxing food and then offering a tax credit to low-income families is less costly for states than a full exemption, but it usually can`t offset food taxes for many people living in poverty. These loans may be too small, only available to some low-income individuals, or require families to know about the loan and fill out a form or file a tax return (even if they don`t need it otherwise) to apply. [9] In addition, sales tax is paid at the time of purchase of the food, but tax credits are paid annually as a lump sum, so they do not help low-income families make ends meet on a monthly basis. In addition, the value of these loans decreases over time as food costs rise, as no government with a loan today adjusts it to inflation and some have not increased it for many years. For example, Oklahoma`s credit of $40 per person in the household hasn`t changed in at least three decades. State Sales Tax: 7% state tax. There is also an additional state tax of 2.75% on the sale of individual items, which applies to the $1,600 to $3,200 portion of the retail price. Localities can total up to 2.75%, according to the Tax Foundation, with an average combined rate of 9.547%. Food is taxed by the state at 4%, in addition to any additional local taxes. Clothing is taxed at the standard rate. Motor vehicles are taxed at the base rate of 7%, plus the additional 2.75% on purchases between $1,600 and $3,200. There is no tax on prescription drugs.
[15] Utah State Legislature, 2018 General Assembly, HB 148, le.utah.gov/~2018/bills/static/HB0148.html. In 2019, Alabama considered a proposal to exempt food from taxation and allow cities and counties to reduce or eliminate their sales taxes on food. John Sharp, “Food Tax Plan Stopped in Alabama House Committee,” AL.com, April 17, 2019, www.al.com/news/2019/04/grocery-tax-plan-halted-in-alabama-house-committee.html. More importantly, the sales tax would create huge opportunities for escape. In the case of income tax, for example, the evasion rate is about 15%. But revenues where taxes are withheld and reported to the government by third parties have evasion rates of about 5%. In the case of income for which no tax is withheld and there is no cross-reporting, tax evasion is about 50%. Since VAT would not include withholding tax and counter-declaration, the possibility of high rates of evasion must be taken very seriously. Making an effort to avoid a few extra cents of sales tax may seem unnecessary, but it seemed to Baker and Kueng to be extremely sensible behavior for the average price-sensitive and tax-phobic American household.
Local tax rates vary. Most states have sales tax rates that vary between cities and counties, but some have nationally uniform rates. Kentucky, along with six other states, has a state-level sales tax, but not a local one. As a result, the 6% rate is uniform throughout the state. Tennessee has local sales taxes, but the range of rates is relatively narrow — less than a cent and a half. At the other end of the spectrum, the difference between Colorado`s lowest and highest rates is more than seven cents. California ranks quite high in overall taxation: 10th highest both per capita and as a percentage of personal income, according to the latest available U.S. Census data.
Crossing state borders to avoid sales taxes has also increased among households in zip codes where such movement is physically favorable. E-commerce has grown faster than other retail sales. While the challenges of tax awareness and use tax enforcement are not new, they have become more relevant as the internet has made out-of-state shopping more convenient. As shown in Figure 14, retailers who specialize in selling goods over the Internet or by mail account for a small but growing share of retail sales. Nationally, this category increased from 2% of national retail sales in 1992 to over 7% in 2012. Baker, along with assistant professor of finance Lorenz Kueng and Stephanie Johnson, a doctoral student in Northwestern University`s economics department, wanted to “examine” consumer reactions to sales tax changes, Kueng puts it. Taxation of services varies from state to state. Some states, such as California, levy a sales tax on a very small number of services – those that are essentially inextricably linked to the sale of tangible goods. However, some states charge sales tax on a wider range of services, such as services for tangible goods. For example, some of the states listed in the figure impose sales taxes on auto and equipment repair services. Individual wages and business income as a measure of the whole economy are not particularly volatile.
But California income taxes are more than five times more volatile than personal income because they also include investment gains, according to the Office of the Legislative Analyst. The state taxes capital gains, partnership income and dividends, interest and rents – areas where the highest income taxpayers get most of their money. Sales Tax Clearinghouse publishes quarterly sales tax data by postal code. We weight these numbers based on 2010 Census population counts to give an idea of the prevalence of sales tax rates in a particular state. States that have turned away from food taxes in the past have often chosen to raise their sales tax rates to compensate for the loss of food tax revenue. This can generate significant revenue, but weakens the poverty-reducing effect of abolishing food taxes, as the sales tax also hits low-income families hardest as a proportion of income. Bradley-Burns rates for general purposes. Revenues from the Bradley-Burns Tariff are available to local governments – primarily cities – for general purposes. The state allocates these revenues to the city or county that served as the “point of sale” in a transaction. In general, the point of sale is the dealer`s place of sale. Bradley-Burns tax revenues from sales that take place within the limits of a city are allocated to that city; Revenue from transactions that take place in the unincorporated area of a county is allocated to the county. This approach to revenue allocation is referred to as the “situs-based” system.
As explained in the box below, this system provides significant tax incentives to cities and counties to encourage retail development in their jurisdiction. (c) Sales taxes in Hawaii, New Mexico and South Dakota have a broad base that includes many business-to-business services. Most states have state and local sales taxes. Most states collect sales tax at the state and local level. Some states, such as Kentucky, have state-level sales taxes, but do not allow local governments to collect local sales taxes. Alaska is the opposite – local governments charge sales taxes, but the state does not. Sales taxes exacerbate incomes and racial inequality. [2] Low-income individuals pay significantly more of their income in sales taxes than higher-income individuals because they have to spend a very large portion of their income to meet their basic needs. The fifth of lowest-income families (those earning less than $20,800) — who are families of color disproportionate due to historical and contemporary discrimination — pay nearly eight times more than a portion of their income in sales taxes than the wealthiest 1% of families (those earning more than $553,200), on average: 7.1% against 0.9%. [3] Revenue systems in states that rely too heavily on sales taxes create additional barriers for low-income residents, making it harder for them to pay for everyday expenses such as gas for their cars or rent in neighborhoods with more options — which can make it harder for them to make their way into the middle class.
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