The Connecticut sales tax

Thesis (Ph.D.)--Boston UniversityThe Connecticut sales tax is the most important single revenue producing measure in Connecticut's fiscal history. It has also proved to be one of the most controversial pieces of tax legislation adopted in Connecticut's history. My purpose has been to evaluate the sales tax as a measure designed to produce the needed additional revenue with the least amount of inequity to consumers and business in additional burdens, and with the least amount of administrative expense to the state. It is the tax that was chosen by the representatives of the people and may be considered to have a general public support from the beginning although the early support was by no means unanimous. In Chapter 1, I present the background need for additional revenue in terms of the expanding expenditures of the state. The objects of these increasing expenditures were highways, charities, and education. Relief expenditures also held an important position in the 1930's. In the post war period capital outlay expenditures, neglected during the war, and rising prices made expenditures increase. These increases indicated revenue needs. The second part of the Chapter 1 is an attempt to indicate the need for additional revenue in terms of Connecticut general budget balance and general fund balance. Accounting concepts developed by the Bureau of the Census were used. It is felt that this approach helps to bring out more clearly the revenue inadequacies of the state. The last section of Chapter 1 deals with the Connecticut revenue system. The percentages that various taxes are of the total tax receipts are indicated for selected years showing the relative revenue importance of the various taxes. The analysis of the Connecticut revenue system indicates the need for broadening the revenue base. The results of this achievement through the sales tax are indicated. Chapter 2 deals with the history of the Connecticut sales tax from its passage in May of 1947 to February of 1951. The history of the tax traces three threads of development. There is the legislative history which deals with the original passage of the sales tax bill, pressures for modification by various groups, the hearings before the Finance Committee preparatory to the special session of the legislature in 1948, the Saxon Report presented for consideration by the legislative finance committee, the special session with its resulting amendments, and the renewal of the sales tax vs. income tax controversy in the legislative session of 1949. This legislative history is a study in partisan politics and the basic theme is income vs. sales tax controversy. A second thread of historical development is the early community and public antagonism developing into final public acceptance. The third historical thread is that of the development of the administrative machinery for carrying out the act. Education of the public to final acceptance of an initially unpopular law may be seen in the campaign carried on by the state tax department and the press in bringing clarity to the sales tax act. It is indicative of the selling job a tax administrator has when new legislation is imposed. It has been my intent to present the arguments by the opposing sides in the controversy with as little injection of critical comment as possible. The hope is that enough of the logic or lack of logic to the various arguments is evident to present the true nature of the alternative and the extent of the correctness of the peoples' choice. Chapter 3 presents a general comparison of the Connecticut two percent tax with the sales tax of the other sales tax states. A comparison is made as to type, basis, and rates. A second comparison deals with the exemptions of particular commodities under state sales taxes. A comparison of exemptions of sales to certain types of buyers and a comparison of exemptions of commodities subject to excises are also presented. Finally a comparison of exemptions of specific transactions is shown. The Connecticut tax is also compared with the taxes of certain selected states such as California, on which the Connecticut tax was modeled; Rhode Island, Maryland, Tennessee, and Florida which are with Connecticut the "new" sales tax states, and New York City which is within the same region. The major provisions of the Connecticut tax are explained, and attention is given to its scope, measure, rates, major exemptions, and revenue importance. A comparison of revenue returns under a one, two, and three percent rate is shown as well as the tax productivity of various types of retail business. Chapter 4 describes the administrative machinery of the state sales tax and use tax devision. The cost of administration is compared under the one, two, and three percent rates. This was possible because the three rates were all in effect during the first four years of operation. The administrative problems of the use tax are discussed as well as the administrative problems connected with certain exemptions. Chapter 5 deals with the economic aspects of the Connecticut sales tax. The problem of shifting and incidence as affected by the "separate charge" provision is discussed. Consideration is also given to aspects of shifting through cost structure of retail business. Burden and regressivity are the major subject of attention in the remainder of the chapter. A comparison is made of the regressivity evidenced when different sets of income expenditure data are used as a basis for applying the tax. Data from the following three studies, the 1941 "Study of Family Expenditure" by the National Resources Planning Board based on 1935-36 data on consumer purchases, the study on "Family Income and Expenditures in 1947" by Helen M. Humes, and the study of 1941 by the Bureau of Labor and Statistics on "Family Spending and Saving in Wartime," showed comparable results. The effect of exemptions on reducing the amount of regressivity was shown. By combining the percentage of income tax taken by the two percent tax and the gasoline and cigarette taxes and indication of the heightened regressivity which results from adding the sales tax to excises and other proportional taxes is evident. Chapter 6 draws the following conclusions: The Connecticut sales tax was a temporary measure designed to meet the need for increased revenue. It has met that need and achieved public acceptance in its four years of existence. Since revenue needs to continue to expand, the sales tax will become a permanent addition to the revenue system. It may be adjusted by and increase to three percent to meet the increasing demands for additional revenue and/or other sources will be tapped to provide the additional revenue. The future may possibly see an income tax added to the state tax system to provide the needed revenue. The Connecticut sales tax represent a recent trend in sales tax development which does not recommend itself to ease of administration. This trend is illustrated by the increase in number of exemptions included under the Connecticut tax. The exemptions which pose the greatest administrative problems and at the same time accomplish little in the way of added equity should be either modified or withdrawn. An extension of the tax to gasoline and cigarettes would be desirable. The exemption of children's clothing, which does little to reduce the regressivity and poses a major administrative problem, should be dropped. The withdrawal of the exemption on restaurant meals and on domestic fuel would accomplish much in the way of administrative simplicity and add noticeably to revenue receipts. The addition of tools and machinery sold to industrial and farm users to the exemption list would make the incidence clearer and more directly to the consumer. The exemption of food should be retained if the rate remains at two percent or moves upward. In the light of revenue needs and for the achievement of administrative simplicity, the exemptions should be reduced. The incidence of the Connecticut sales tax is essentially on the consumer. This result is accomplished by complete shifting under the separate charge provision. The tax is regressive and the regressivity is modified somewhat by the exemptions. Though the regressivity is not particularly serious in itself, it adds to the burden of an already regressive state and local tax system. If the rate is increased to three percent the burden will noticeably increase, and the removal of exemptions on domestic fuel and restaurant meals perhaps should be foregone. Maintaining or reducing the rate with a reduction of exemptions would be preferable. The burden on business is negligible at the present rate and generally diffused. An increase in rate would increase the competitive disadvantage of retailers competing with out-of-state firms. The Connecticut sales tax has proven itself as an outstanding and fairly stable revenue producer. Recognizing the inequity in burden on the lower income groups, popular approval and ease of payment may well outweigh this disadvantage. Any increase in rate, however, should be made only after a complete and careful evaluation of possible alternative measures

Form Based Codes and Economic Impacts: A Multivariate Regression Analysis and Case Study

After a 100-year history, traditional zoning practices are being challenged as a contributing factor in a number of social, heath and economic problems facing cities in the United States. In this context, form based codes have emerged as a possible alternative way for cities to guide development. Growing out of the New Urbanist movement, form based codes frequently mix uses, allow for a greater variety of housing types and encourage development that is both denser and more compact. Despite an established literature which links land-use regulations, and zoning in particular, to fiscal outcomes, the impacts that form based codes have on public finance in the growing number of cities which have adopted them has yet to be fully investigated. The goal of this research is to examine if and how form based codes alter property tax and sales tax generation in the cities that adopt them. To examine the relationship between form based codes and public finance a series of two multivariate regression analyses were conducted using historic property and sales tax data. The first regression analysis was performed using the full list of 122 cities which have adopted form based standards from between 1984 and 2009. In an attempt to limit the diversity of sample cities and improve the ability to generalize results a second regression analysis was performed using a smaller list of 47 cities with populations between 50,000 and 200,000 thousand that had adopted form based standards between 1984 and 2009. The results of the first analysis established that a statistically significant positive relationship existed between the presence of form based standards which were implemented citywide and observed property tax revenue both in total and on a per capita basis. Similarly, a statistically significant positive relationship between the presence of form based standards implemented at the neighborhood level and total property tax revenue was observed. No significant relationship was found between the presence of neighborhood level standards and per capita property tax revenue. Further no significant relationship was found between form based standards and sales tax revenue. In general, these findings support the theory that form based codes and the development they allow, does alter the amount of property tax a city collects, but does not support the theory that form based codes affect sales tax revenues by facilitating the development of a more conducive urban, walkable environment or for any other reason. The results of the second regression analysis using data from cities with populations between 50,000 and 200,000 showed a significant positive relationship between the presences of citywide form based standards and total property tax revenue and per capita property tax revenue. Analysis of sales tax data showed a positive relationship between total sales tax revenue and the presence of form based standards at the neighborhood level. No other significant relationship between form based standards and sales tax revenue was observed. Similar, to analysis of all cities, the results for cities with population of 50,000 to 200,000 support the theory that form based codes and the development they allow does alter the amount of property tax a city collects, and that form based codes do not affect sales tax revenues except in the case of codes adopted at the neighborhood level, where a generally positive relationship was identified at the 10% confidence interval. Following this multivariate regression analysis, a case study of Saratoga Springs, New York was completed. Located in the far reaches of the Albany Metropolitan Area, Saratoga Springs developed as a popular tourist destination in the mid 1800’s. After experiencing economic decline in line with that of its peer cities in the mid to late 20th century, Saratoga Springs has experience a boom and now boast some of the highest home values in Upstate New York. In 2003 the city was one of the first in country to adopt form based standards, which have guided a significant amount of development in the city’s historic downtown as the city re-emerged as a popular tourist destination. Since the adoption of form based standards in Saratoga Springs both property tax and sales tax receipts have doubled

Evaluation of the 1988 Malaysian tax reform proposals: A general equilibrium approach

In the Malaysian 1988 tax reform proposals, recommendations were put forward to reduce taxes on corporations by an effective rate of 10%, to introduce Value Added Tax system, to implement some short term measures such as the blanket increase in the Sales tax rates by 5%, to reduce export tax and to broaden the tax base on import tax. These proposals has been evaluated and counter proposed by the author. A general equilibrium approach was adopted to evaluate the proposal. The model used was static in nature and only produced a marginal impact due to restructured tax instruments. Some extrapolation on the result was necessary to enable data to be used for a specific evaluation. An actual benchmark data set was constructed based on data available from Malaysian Statistics, except in certain areas where actual figures were not available. Sensitivity analysis was performed on these assumed parameters to gauge the sensitivity of the result. The work performed here would make a significant contribution to the economic forecasting work in Malaysia, as it paves the way for a general equilibrium theory in the area of tax reform. It would also permit more extensive research to be carried out using such a model especially in the annual budget exercise of the Treasury Department. The study shows that Corporate Tax is one of the most efficient and productive tax instruments in the economy. Its tax burden distribution has also been found to be quite positive. It has therefore been ascertained that reducing the tax would be unjustifiable unless a better tax instrument was created. The author's (counter) proposal to reduce Payroll Tax rate by 5% was found to be more viable as Payroll tax was found to be inefficient and unproductive. This counter proposal would also achieve the objective of reducing the cost of doing business in Malaysia and at the same time improve the overall tax burden distribution. The existing imputation tax system was found to still be the most efficient and productive mechanism for Malaysia. The proposal to introduce the Value-Added tax system is optimally desirable judging from the three main criteria of efficiency, equity, and tax revenue productivity. The claim that the tax system would create some inflationary impact was also proven to be ill founded; provided the tax rate structure is not altered. In other words, an effort to make the rate structure uniform should occur in stages. In analysing the various feasible types of VAT system, the consumption type was the most efficient, tax productive as well as equitable. The author's proposal to increase tax rates on Clothing and Footwear and Manufacturing durables was also found more viable, as these two intruments are quite outstanding, compared to others in the system. A counter suggestion to abolish the export tax altogether is also sensible if the tax revenue loss was recouped by raising the rate on the producers tax. This is optimal, and hence desirable, since a producers tax has been observed to be much more efficient and productive than the export tax. It had however been qualified that the counter proposal will only be viable when a separate channel of marketing could be created for small scale producers in an effort to exempt them from paying the tax. Finally, it is also desirable to exclude imported manufacturing durables from the import tax base judging from the efficiency, tax productivity as well as equity objectives of tax reform. The sensitivity analysis on the income elasticity and the substitution elasticity of the household sector had been carried out to prove the moderate nature of the result obtained in the tax reform analysis

Criteria For Expanding The Sales Tax Base: Services and Exemptions

This brief focuses on issues associated with the sales tax base and discusses the criteria and factors that should be considered in deciding which services to add to the sales tax base and which sales tax exemptions to eliminate or add

Consumption Tax Options for California

Reviews concerns about the state's current tax system and evaluates potential consumption-based tax reforms, including retail sales tax reform, corporate income tax reform, gross receipts tax, value added tax, and sales-apportioned tax on value added

Transportation Funding Alternatives:A Preliminary Analysis

This report explores issues associated with proposed alternative revenue sources for increasing transportation for funding. FRC Report 13

Do Roads Pay for Themselves? Setting the Record Straight on Transportation Funding

Analyzes the history, political context, and future plausibility of the claim that highways pay for themselves through "user fees" such as gasoline taxes. Calls for investing in transportation systems based on comprehensive cost-benefit analyses

Subnational Value-Added Taxes: Options for Georgia

This report considers the implications of levying a "subnational value-added tax in Georgia as a replacement for the state corporate income and sales tax. FRC Report 16

Intergovernmental Fiscal Relations in Georgia

This report documents the intergovernmental fiscal system in Georgia, with a focus on the expenditure, revenue, and intergovernmental grant system in the state. FRC Report 14

Funding Health Care for All Americans: An Economic Perspective

Provides an overview of healthcare spending and funding sources, levels of subsidy and compulsion required for universal coverage, alternative funding instruments, and issues to consider in evaluating them, such as effects on the economy or health sector