Saturday, February 25, 2012

Lessons from the VAT



London’s Oxford Street has over 300 shops stretching along one and half miles; itreceives 200 million visitors each year, making it Europe’s top shoppingdestination. Just over a year ago,the United Kingdom decided to capitalize on this attraction by raising its VAT,value-added tax, from 17.5% to 20%. Actually, the increase had little to do with Oxford Street and everything to dowith the UK’s budgetary concerns coming out of the recession.

OnJanuary 4,2011 Chancellor Osborne increased the UK’s VAT 2.5 percentage points in effort to relieve debt byraising a projected £300billion in one year. Highlycriticized by the Labour Party, the Federation of Small Businesses, retailersand residents, the VAT hike quickly fell shadow to other financial issues, such as thedramatic increase in University tuition. The UK willsignificantly benefit from the additional VAT revenue brought in during the2012 Olympics – despite the fact most items over £75 are VATexempt for non-European Union tourists under the Retail Export Scheme and London taxpayers will have to cover costs of the mismanaged Olympic Park budget.

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.




Thevalue-added tax resembles a traditional US sales tax to consumers because theend product is taxed at a flat rate; the difference lies in the multi-stageproduction process. VAT is only used on gross margins, the value-added along the supply-chain spectrum – this avoids tax cascading. The process benefitsbusiness and manufactures, however a dollar taxed to the consumer does notalways equal a dollar gained by the government - VAT createsadditional deadweight loss. Value-added taxes are structured to avoid taxevasion, but are oftentimes subject to carousel fraud.

Although the value-added tax is moreapplicable to international economies, it is an important alternative model tounderstand. Plus, Michigan used it!

Friday, February 24, 2012

Minnesota's Affiliate Nexus Bill

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

Will Minnesota Adopt an Internet Sales Tax?


Imagine for a moment that you were interested in purchasing a new Nikon digital camera. A quick online search returns the same initial price from both Best Buy and Amazon.com--$ 749. However, something strange happens after reaching the final checkout page; the same camera from Best Buy will cost an additional $54.56 in taxes for a Minnesota resident, where no taxes are owed from Amazon.com. $50 may not be a big deal to Ashton Kutcher, but it may mean the difference between a sale benefitting a Minnesota- based business or a competitor--not to mention $50 in lost tax revenue to the state.

Consideration of an internet sales tax proposal has policy makers engaged in heated debate, and the politics are delicious.  As a recent Star Tribune article says,
"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.

A Supreme Court ruling in 1992 said that states cannot force retailers to collect sales tax if they do not have a brick-and-mortar presence in a state.  Yet several states are trying to find ways to force online companies that have “affiliates” in the state to collect taxes.

Sales tax has become the primary funding source for state governments. One reason for this is that is harder for people to avoid the tax at the state level than at the local level.  For example, it would be pretty easy for me to travel the next city over if it meant paying less in sales tax, but it is largely impractical for me to travel to another state to make a purchase. As the internet brings every major retailer directly into my home regardless of where it is located, purchasing out of state becomes not only practical but downright convenient. That sound you hear is the tax base crumbling slowly under your keyboard.

There is also concern that failure to collect tax for online sales makes an already regressive tax (a tax which falls disproportionately on lower incomes) even more regressive. It is comparatively wealthy people with credit cards and ready access to the internet who can avoid paying sales tax online. 

Did you know that you are already required to pay sales tax directly to the state if it was not collected through an online retailer? Unsurprisingly, less than 800 people knew about this law, figured out how to settle up and actually paid this tax in 2010. The current law is about as unfeasible as it gets. Amazon.com claims that forcing them to collect the tax would be difficult to administer on their end as well, having to deal with as many taxing districts and laws as they do. One can speculate that Amazon would be up to the task if necessary, but if online purchases must be taxed, they argue, it is best administered at a national level to make compliance less burdensome.

The question is whether states such as Minnesota can afford to wait for the federal government to act. According to estimates from MPR, not collecting online sales tax costs the state as much as $400 million each year. For those keeping score at home, that’s 61.5% of the projected $1.3 billion deficit for the 2014-2015 biennium. 

Saturday, February 18, 2012

Online Sales Tax & Small Business


Sales Tax Background
Sales tax is a tax on the total final personal consumption of residents in the jurisdiction levying the tax. Historically, the cost of compliance has fallen mostly on retailers who sell eligible goods and services from a physical location inside that particular jurisdiction. These retailers must collect and remit sales tax to the government on behalf of their customers.

But with internet sales, businesses may not have the same tax compliance responsibility. If an online business does not have a physical presence in the resident’s state or jurisdiction, then that business does not need to collect and remit the sales tax for an eligible purchase made by that resident. With online sales growing quickly, this means that more and more transactions are not being taxed at the point of purchase.

Technically when making purchases of eligible goods and services online, residents are still required to pay the same amount of tax directly to their government. However, whether for lack of knowledge or lack of enforcement, most people do not do so. According to an MPR news story, in 2010 “only 734 individuals paid the State of Minnesota for uncollected sales taxes, putting a mere $371,000 in the state's coffers.” The government estimates that the actual amount owed was closer to $400 million. This means that less than .1% of sales/use tax owed was actually collected.

Understandably, states are interested in changing the rules to require online businesses to collect and remit sales tax for purchases made by their residents, even if they do not have a physical presence in that jurisdiction. There are many valid arguments made on both sides of the debate, but I would like to address some of the problems of such a requirement from a small business’ perspective.

Snake Oil, LLC
I am a small business owner. My business partner and I design and sell a party game called Snake Oil. We mostly try to sell our game wholesale to retail stores, but we also have made our game available for purchase online from anywhere in the United States.


For our company, and many other small companies, collecting and remitting sales tax for any purchase made online from any state is a cost too high to bear. We would immediately stop selling our goods online.
To illustrate why the cost of compliance would be too high for us, I want to share the current processes we go through to 1) collect online sales tax through paypal and 2) to remit that tax to the State of Minnesota.

Collecting Online Sales Tax with PayPal


In this table, which I copied from our Paypal account, you can see the complexity involved in setting up sales tax calculations based on state and zip codes. Because our business is in MN, all online purchases made from MN require the baseline 6.875% sales tax. If a purchase is made in Ramsey County, where we are located, it is taxed at 7.125% (state + local). Finally, if a purchase is made in Saint Paul, where we are located, it is taxed at 7.625% (state + local + transit). In order to get PayPal to charge the correct amount of tax, we have to enter it in based on zip codes manually. The good news for us is that any purchase made from someone outside of Minnesota requires us to collect no sales tax.


Remitting Sales Tax to State of Minnesota
Because of our company’s small size, we need to remit sales tax to Minnesota quarterly. Doing so accurately requires use of QuickBooks accounting software and detailed record keeping that tracks purchases and sales tax payable. At the end of each quarter, businesses use E-Service Minnesota to report their revenue and file their sales taxes online. If record keeping is done well, the entire process requires 1-2 hours. There is a handy video that you can watch to learn the process.

Dealing with the sales tax complexities of one state is not easy.Indeed the instruction booklet for Minnesota sales taxes is already 19 pages long. But I cannot imagine a system in which our business needed to collect and remit taxes for each state separately. Each state - even each city! -has unique rates, rules, and exceptions. Each state also has its own system and deadlines for remitting sales taxes.Small businesses do not have the ability to manage all of these differences, and if required to do so, they simply would cease to exist.

Current Draft Legislation Protects Small Business
Fortunately, almost all draft legislation at the state and national levels has recognized the immense burden that these rule changes would place on small businesses. Most would exempt businesses below a certain amount of annual remote revenue (i.e. $500,000) from the requirements.

The internet is powerful because it has allowed practically anyone from anywhere to participate in the marketplace, which results in more economic activity and vitality. While the arguments for requiring online businesses to collect and remit sales tax for all states are strong, in our current system, they would present too much of a burden to small businesses.


Friday, February 17, 2012

The Tax Implications of Agricultural Preservation

Anyone interested in issues related to sustainability know that one of the greatest challenges facing proponents of sustainable planning practice remains the trend of sprawling development and consumption of agricultural lands along the periphery of metropolitan areas.  One popular method to protect these agricultural lands it the establishment of preservation programs in which land owners are given tax-relief as incentives to keep their land as open or natural spaces.  The video below illustrates how once such program (Rural Preserve Program) works.


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.

Rethinking Property Tax Exemptions

According to the Minnesota Office of the Revisor of Statutes, Statute 272.02 designates property tax exemption to 97 different uses. These uses, ranging from nursing homes to churches to non-profit organizations to schools, tend to be uses that people believe produce positive societal externalities. By allowing such uses to be exempt from paying the property tax, the state hopes to incentivize the continuation of such uses.

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

Exclusions, Credits, Market Value and You


As discussed in Friday’s blog post and in class on Wednesday night, property taxes in Minnesota went through a major policy overhaul at the end of the 2011 session. The Homestead Market Value Credit was eliminated and was replaced by the Homestead Market Value Exclusion. Tonight we discussed some of the different ways that tax rates and tax bills can change, our video specified 14, and Friday’s blog post focused on a specific way that the new property tax policy changes rates. I’d like to focus on a characteristic of the Exclusion that changes rates and bills in a subtle way: $1 of Credit and $1 of Exclusion, though theoretically equal in certain conditions, are usually not equal in practice.

Click Here! for an Excel workbook that I’ve assembled to help you follow along. Many of the values are changeable, crucially the local tax rate. The default setting is for a Homestead property in District Code 0151 (St. Paul - 625 (C))with an Estimated market value of $200,000. On the second sheet of the workbook are rates from all the different taxing districts in Ramsey County. 

So as I was saying, the Exclusion and the Credit, though they appear at first glance to be equal can in reality arrive at very different values of tax relief. Professor Zhao mentioned briefly in class that the benefit of the Credit and Exclusion can vary depending on the level of local tax. This is because Tax Credits are not dependent on tax rates and are applied after tax capacity has been determined. Tax Exclusions are applied before tax capacity has been determined, but more importantly, the value of a tax exclusion depends on the tax rate applied to that excluded property. If you’ve downloaded the workbook you can adjust the local tax rate to see what I mean. Click on the picture below for a larger image.



Here the Credit and the Exclusion are essentially equal. This is because the Excluded property would have been taxed at 100%, ergo the value of a $100 Exclusion would be $100. A $100 Credit is worth $100 no matter what the tax rate is. In the next picture the local tax rate is 155%, and you’ll notice that the tax bill under the exclusion has shrunk because its value has increased with the tax rate.



In the above example, $100 of Exclusion is worth $155, whereas $100 of Credit is only worth $100.

Finally, consider an example where the local tax rate is very low, in this case 15%. There are many places in Minnesota where the local tax rates are extremely low relative to the Metro area. This is why there was a significant uproar over replacing the credit, especially coming from the Rural areas. As you can see, the Exclusion in this case is worth far less than the Credit, and local tax bills have risen dramatically. In this scenario $100 of Exclusion is only worth $15, where $100 of Credit is still worth $100.



Whether or not the uproar over the Exclusion will be enough to reinstate the Market Value Credit remains to be seen, though there are signs that it could happen.

Friday, February 10, 2012

MN Property Taxes Likely to Increase in 2012: Who's Hit the Hardest?

Property taxes in Minnesota are likely to increase in 2012.  To understand why, we have to look back to 2011’s heated legislative budget debates which led to a three-week shutdown of almost all state government functions.  Many of us that were eagerly awaiting an end to the shut-down (or at least for people to stop talking about it) may have missed an important detail in the agreement that finally ended it concerning property tax relief.  The Homestead Market Value Credit, a pool of state funding set aside for local property tax relief (estimated at $260 million for 2012), was eliminated. In its place, Governor Dayton and state legislatures agreed to replace it with the Homestead Market Value Exclusion, which excludes a certain percentage of a home’s value, up to $414,000, from property taxes.

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.

The Power of Projections

When it comes to state and local politicians, what's the biggest influence on how craft their speeches, interviews and talking points? What drives them to go on the offensive about issues, or play it safe and wait out the storm?

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

Jarbidge Shovel Brigade & Public Choice




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.
I visited Jarbidge, and I can attest that the residents choose to live there to be as far away from the government as possible, yet they are surrounded by land owned ad controlled by the Federal government. This is an extreme example of a common dynamic in this area of the country: many choose to live in small, isolated settlements with very small governments, but they are significantly impacted by governmental decisions at the Federal level. It illustrates one of the limits of choices available to the public in the United States, and that people do not have an entirely rational perspective on what control their residence decision entitles them to with regards to public services.

Fiscal Federalism & Public Choice

Fiscal Federalism

Fiscal Federalism is the break down of funding between thethree levels of governments: Federal, State, and Local. The level of fundsgoing between the levels varies from state to state. As we learned in class,most of Federal Revenue comes from individual income taxes; most of the State’srevenue comes from sales taxes(although there are exceptions); most of Localgovernment’s revenue comes from property taxes.

On the expenditure side of the budget, the responsibilitiesagain are broken down between the three major levels of government: Federal,State, and Local. Areas of spending have been created based on three theories:the benefits principle, devolution principle, and the administrationefficiency. These theories put the Federal government in charge of nationaldefense and schools; the state in charge of many social services andtransportation (these are the agency profiles and their budgets provided by the Office of Management and Budget); and cities in charge of policing and economicdevelopment.

The amount of money each state receives varies a lot. Thereare numerous factors going into the calculation of the amount of funds eachstate receives and for what purpose. This Link shows the amount of money per capita thateach state receives from the federal government and if you click on the map ofthe United States and ‘interact’ with the graph the statistics broken downfurther.

There are strong relationships between the Federal budgetand the State budget, and the State budget and Local budgets, and Federalbudget and Local budgets. A decrease in one of the funding sources often leads toincreased burdens in another area. For instance, recent years have necessitated cuts in local government aid from the State to Local governments, a controversial issue during last years budget talks in Minnesota. This couldlead to gaps in local government budgets, which would have to filled with othersources of money closer to local governments, property taxes.

Public Choice

Public choice is where economics and political science mergeinto one realm of study. This discipline watches over two distinct types ofvoting. The first in through the actual process of casting a vote on candidatesor fiscal issues like school levies or tax increases.

The other type of voting being observed is “voting with yourfeet.” This is the idea that if a person does not like their service and taxpackage, they can move out of that school district, city, county, or state.This reminded me of the topic of “Tax Flight.” The presupposition behind tax flight is that a state would end uplosing, rather than gaining revenue because people would leave a state because of the tax increase. There was a study by the Center on Budget Policy and Prioritiesthat found the idea that if astate raised taxes it would would cause a significant amount of people to leavean area is a myth.