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- Title
Use tax administration and revenue production in the states.
- Authors
Mikesell, John L.; Stavick, John D.; Ross, Justin M.
- Abstract
Use taxes are utilized by states to discourage taxpayers from engaging in sales tax avoidance via shopping in lower tax states. Enforcement of this tax has long been difficult, as demonstrated in the case of South Dakota v. Wayfair, Inc. (2018). States have instead relied on different administration and tax structures to generate revenues. We contribute to the limited existing use tax literature by studying a panel of use tax revenues collected from 25 states, as well as use tax collection methods states implement for individual and business taxpayers. States are best at enforcing the use tax where they can rely on complementary administrative tax collection systems, such as in business‐to‐business transactions. They will likely struggle to realize improved use tax compliance for household consumption even in the wake of the Wayfair ruling. Key Takeaways: All states that levy a retail sales tax also levy a complementary use tax. It was developed to help facilitate collection of taxes in cases in which it was not collected and remitted by the merchant. While the interstate commerce clause in the U.S. Constitution prohibits states to compel out‐of‐state merchant collection of destination‐state taxes, the U.S. Supreme Court held that the use tax does not violate this provision as it taxes the "first use" of the property in the destination state.Compliance with the use tax is greatest when third‐party collection and/or reporting is possible, such as merchant collection and motor vehicle registration systems, respectively.Although recent legal developments related to economic nexus has closed many avenues for use tax evasion through the course of online shopping, use tax liability arises frequently in the context of taxable business‐to‐business sales.Nearly all of use tax revenue collected arises from liability arising from business‐to‐business sales. While states make mechanisms available to consumers to remit use tax, such as the individual income tax return, the contribution to overall use tax collections through these means are small.The revenue yield of the use tax is comparable to that of state corporate income taxes (about 3 percent of total state revenue).
- Subjects
SOUTH Dakota; TAX administration &; procedure; INTERNAL revenue; SALES tax; WAYFAIR LLC; UNITED States. Supreme Court; INCOME tax; TAXPAYER compliance; BUSINESS-to-business transactions
- Publication
Public Budgeting & Finance, 2023, Vol 43, Issue 4, p24
- ISSN
0275-1100
- Publication type
Article
- DOI
10.1111/pbaf.12350