Recent data suggests that state policy makers are making a shift to taxing consumption rather than income and capital. There are several reasons for this:
- In economic downturns, sales tax collections tend to fall faster but recover sooner relative to income and property tax revenues. (This means that the “fall and recovery” curve is more V-shaped for sales tax, and more U-shaped for income and property taxes).
- From an administrative perspective, sales taxes are collected and remitted monthly and “at the source of the sale.” This helps make the cash flow a genuine (and timely) benefit to state and local governments.
- Sales tax compliance also tends to be high among sellers because the penalties for non-collection and remittance are onerous. As a result, tax jurisdictions typically can count on collecting a higher portion of sales taxes compared to other types of taxes (e.g., property taxes) with higher non-compliance rates.
Source: vertexinc.com
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