The value-addedtax, a consumption tax, is used in most developed nations but hasn't been seriously considered as an option in the United States - except in Michigan. The value-added tax is regressive innature, although the UK exempts products such as food, books, and children’sclothing; other items such as domestic utilities are taxed at 5%. As a result, many argue the VAT can be a fairly progressive form of taxation. The recent VAT rise in the United Kingdom willdisproportionately harm the poorest residents, but it avoids raisingincome taxes.
Saturday, February 25, 2012
Friday, February 24, 2012
In 1992, the United States Supreme Court, in Quill Corp v. North Dakota, that a business must have a physical presence in a state in order for a state to collect sales or use taxes for purchases made by in-state customers. The Court determined that compelling out-of-state businesses to collect sales taxes constituted an undue burden on interstate commerce.
However, as the presence of electronic commerce grows, this decision has limited the ability of states to compel large Internet retailers to collect and remit sales taxes. Many states are concerned that this limitation puts brick-and-mortar stores at a competitive disadvantage if their customers can buy products online tax-free. In addition, many states see taxing Internet sales as a way to expand their sales tax base. For these reasons, many states are considering ways to capture unrealized Internet sales tax revenue from companies like Amazon.
Minnesota is no exception. Under current law, affiliates of Minnesota businesses are required to collect and remit sales taxes on sales within Minnesota. According to Minnesota Revenue, “an entity is an affiliate of a Minnesota business if the related entity promotes the affiliate’s business or provides services to the out-of-state entity and the retailer and entity are related parties.” Representative Greg Davids (R−Preston), the House Tax Committee Chair, has introduced H.F. 1849, a bill that would define the term “solicitor” as “a person, whether an independent contractor or other representative, who directly or indirectly solicits business for the retailer” and include solicitors as affiliates of out-of-state retailers.
Known as the “affiliate nexus” bill, H.F. 1849 would require, for example, Amazon affiliates in Minnesota who sell $10,000 or more in a twelve-month period to collect and remit sales tax revenue to the state. Minnesota’s two largest retailers, Target and Best Buy, have advocated for the change. Based on the November 2011 forecast, and a similar bill enacted in Illinois, Minnesota Revenue estimates the affiliate nexus bill will generate $3.90M, $4.97M, and $5.71M in fiscal years 2013, 2014, and 2015, respectively. Governor Dayton has also included the affiliate nexus provision in his jobs bill.
Enacting the affiliate nexus bill will be a political challenge. Although Rep. Davids, a Republican, is carrying the bill in the House, H.F. 1849 does not have a Senate companion. The Star Tribune ran a story in last Sunday’s paper highlighting the internal divide among Minnesota legislators on expanding the sales tax, even if doing so potentially benefits local retailers. Six other states have already passed similar legislation. California will enact a similar law if no federal legislation is passed this year and Vermont will do the same if 15 other states enact similar legislation. In the meantime, Amazon has voluntarily agreed to pay an Internet sales tax in California and Indiana. Regardless of what Minnesota choses to do this session, the affiliate nexus will continue to be a prominent tax policy issue moving forward.
Wednesday, February 22, 2012
"The issue pits behemoth Internet companies like Amazon squarely against bedrock Minnesota retailers like Target and Best Buy, forcing some Republicans who control the Legislature to choose between helping Minnesota companies and honoring their longstanding refusal to raise taxes.
Saturday, February 18, 2012
Friday, February 17, 2012
Proponents of sustainability have certainly supported such programs because the preservation of open and natural spaces are important for the ecological health of our cities. In addition to these findings, properties enrolled in preservation programs can use money saved by tax-relief to invest in local agricultural initiatives.
However, some have started to question the value of these preservation programs. While owners of properties enrolled in such programs continue to pay less taxes, the rest of property owners must pay more to keep the same level of services and make up the difference. In addition, owner of properties in the Metropolitan Agricultural Preserves Program are exempt from paying for special assessments, such as road and utility projects Considering that these properties only have to remain in preservation for seven or eight years, many critics have stated that these programs do not do an adequate job preserving farmland for the long term. These and other concerns were outlined in a report by the Office of the Legislative Auditor. This report can be found here:
Agricultrual Preserves Report
Along with these findings, some have noted that many of the properties enrolled in these agricultural preservation programs are not in any danger of development in the foreseeable future, particularly in metropolitan areas that are not experiencing significant growth. Thus, these fringe property owners are receiving a subsidy for conducting business as usual, while others must increase their taxes to bear the weight. An article about use-valuation assessment also makes a case about the results of agricultural preservation. This article can be found here:
Wisconsin use-valuation assessment
Overall, the evaluation of these programs serve as excellent case studies about how state and local government use tax-relief. These cases also show that not all use-valuation assessment is necessarily fair or equitable. Regardless of where people stand on these particular preservation programs, it is clear that preservation through tax-relief does have challenges associated with it. These programs must be carefully designed as to not offer subsidy where it is not necessary.
|from Lincoln Land Institute Report|
In the Providence, Rhode Island, non-profits are exempt from paying a property tax. However, with the capital city of Providence facing bankruptcy, this policy is under renewed scrutiny. Providence is home to several major tax exempt institutions-- including three hospitals and four universities. The biggest of these is Brown University. A 2010 City Council Report by the Providence Commission on Tax Exempt Institutions, shows that tax exempt institutions render 35% of the land in the city un-taxable.
Mayor of Providence, Angel Taveras, has called on these institutions to pay a combined total of 7.1 million dollars to the city. This 'Payment in Lieu of Taxes (PILOT)' is, according to a Lincoln Institute of Land Policy Report, already widely used around the country by municipalities housing many tax exempt institutions. The PILOT program is a voluntary payment from tax-exempt organization to the municipality and is often far less than the organization would have to pay if it was taxed at a normal rate.
Does the PILOT program provide enough to make up for the Providence budget shortfall? According to a Boston Globe article, if taxed at the same rate as the rest of Providence, Brown University would owe an annual 38 million dollars to Providence. In fact, while many non-profits would have trouble paying property taxes, Brown University actually has a larger operating budget than the City of Providence:
The operating budget this fiscal year in Providence — a gritty city with high unemployment that has struggled to replace its defunct manufacturing economy — is about $614 million, down 4 percent from last year. The budget of Brown — a campus of stately brick buildings in a neighborhood called College Hill — is $865.2 million for the coming fiscal year, up more than 3.2 percent. Its endowment earned an 18.5 percent return last fiscal year, growing to $2.5 billion. (Boston Globe).
Additionally, Brown University and other major tax-exempt non-profits use city resources to a greater extent than an average tax-paying citizen. But, removing tax exempt status from private educational institutions comes at a significant risk. While major institutions such as Brown University would be able to weather the blow, smaller institutions might not-- and the benefit to the community they provide might be worth the cost of their tax exemption status.
Some additional resources about the PILOT program and tax exemption status' for universities can be found HERE and HERE
Wednesday, February 15, 2012
Friday, February 10, 2012
There are a few factors that explain why this change from credit to exclusion will lead to higher property taxes for Minnesotans. The simplest explanation is that the state is no longer providing this funding, so meeting the same property tax levies will require taxpayers to pony up more dough to fill the gap. Less intuitive, however, is the understanding that the reduction in the taxable value caused by the exclusion will increase tax rates. Because the overall tax base has decreased, local governments must raise tax rates to meet the same levies. This is further complicated by the reduction of home values caused by current conditions in the housing market. To understand more about this change in property tax relief, read this document provided by the Minnesota Department of Revenue, and watch this video by Minnesota Public Radio.
Shifting the need to raise revenues for property tax relief from states to local governments makes sense from an efficiency standpoint. Because demand for housing is somewhat more inelastic than income and goods charged a sales tax, increasing property taxes will generally result in less efficiency loss than increasing income or sales taxes. However, property tax relief was established on the value of equity—particularly ability-to-pay—so it is important to assess this new tax structure in terms of equity and who is paying the highest burden.
The Homestead Market Value Exclusion is set up on a sliding scale which excludes a higher percentage from homes with lower valuations. In this regard, the Homestead Exclusion is an appropriately progressive form of tax relief. Underneath the surface, however, is a more intriguing shift in the property tax incidence. Because the tax base from homesteads is reduced by the exclusion, properties with higher values and other property types, such as businesses and rental properties, will have to pay a larger share of the tax. Thus, the exclusion places a larger burden on certain taxpayers, depending on what type of community they live in. Cities with higher concentrations of businesses, factories, and apartment buildings have properties that can absorb some of that tax burden, while more rural or strictly suburban communities will have homeowners taking a larger share of the burden. Therefore, the new Homestead Exclusion is arguably less equitable to many middle-class families living in Minnesota.
In Minnesota, I would argue that it's Minnesota Management and Budget (MMB). Depending on how MMB forecasts projected revenue, politicians are either pointing fingers because of the deficits they face or trying to claim responsibility for glorious budget surpluses.
A classic case of this was seen in 2011. Due to MMB's projected deficit of $5 billion for the state, legislators spent months agonizing over where to cut the budget, or how to raise revenue. The key problem: healthcare and human services expenditures had a $2 billion funding gap.
After months of fighting and a 20-day state government shutdown in July, legislators finally agreed to borrow money against future tobacco payments. All sides left the debacle bruised, and public satisfaction with their local officials sunk.
Fast forward to December of 2011. MMB announces that the state now has a projected $876 million surplus, and that they had over-projected health and human services expenditures, among other things. A variety of local officials are now claiming credit for the surplus, when in fact, they did nothing to change the structure of the budget. The surplus will seemingly allow politicians to focus on issues instead of budgets.
It looks like MMB's projections about the surplus are still on track, but who knows what February's projections will bring. One thing's for sure: whatever MMB says will set the tone for the entire spring session.
Friday, February 3, 2012
On the Fourth of July, 2000, some 300 protestors descended on Jarbidge, Nevada, the most remote settlement in the state. The town of 50 permanent residents, two bars, and a jail was not hosting a traditional fireworks display, but there was a parade. All present marched to a road on the outskirts of town, South Canyon Road, which the Federal government had closed for environmental reasons. Using shovels, many sent symbolically from around the country (8,500, by one account), they removed the boulders and obstructions the U.S. Forest Service had used to block passage. Calling themselves the Jarbidge Shovel Brigade, they became a powerful symbol of anti-Federalism in the Western United States.
This episode raises interesting questions regarding Public Choice. Following Charles Tiebout's theory of local expenditures, in which citizens are posited to decide where to live based on the bundle of public services provided (i.e. much like consumers), people "vote with their feet". People tend to live in locations that match their preferences on the level and quality of public services, and their associated costs.
The Jarbidge episode illustrates one limit to this theory. In the Midwest and Eastern areas of the country, relatively little land is publicly owned - no more than 10 percent. Hence, more land, proportionally speaking, is owned by private parties or more local forms of government. West of the Dakotas, the percentage of Federal land is over 30 percent in every state. In Nevada, that figure is nearly 85 percent - the highest proportion in the country.