Tax trends for the state Judith I. Stallmann The Academy for Leadership in Local Governance July 14, 2006

Tax trends for the state and local governments Overview of taxes State tax trends State expenditure trends Sales tax holiday ©Judith I. Stallmann

Missouri’s tax rankings, 2002 All state and local taxes % of income Rank Per capita Rank All taxes9.52%42 nd $ th Property2.44%39 th $68437 th Sales and gross receipts 3.80%22 nd $ th Personal income2.47%24 th $69321 st Corporate income and franchise 0.20%38 th $5736 th Charges and fees2.44%40 th $68541 st ©Judith I. Stallmann

State taxes and expenditures

©Judith I. Stallmann

Affected Taxes Each program is different Possible taxes include: – Corporate Income Tax – Financial Institution Tax – Corporate Franchise Tax – Individual Income Tax – Insurance Premium Tax – Fiduciary Tax Source: DED

DED: $ 161 mil. Pharmacy: $ 64 Sr. Cit. Prop Tx $ 86 Insurance: $ 27 Others: $ 11 TOTAL $ 348 mil. Source: DED FY02 Actual Tax Credits Redeemed By Type/Agency

DED Tax Credits Authorized, Issued, Redeemed Source: DED

Discretionary vs. Non-discretionary Discretionary: –Decision to fund an eligible project based on impact. –How much to fund an eligible project –Amount of annual cap to approve Non-discretionary: –Uncapped programs: any eligible project will be funded according to a formula. –Capped programs: eligible projects funded on a first-come first-served basis until cap runs out. Source: DED

DED Tax Credits Redeemed by Type of Approval Source: DED

State Sales Tax 4.225% Total state sales tax rate – 3% General revenue – 1% Proposition C—education –.125% Conservation –.1% Parks, soil & water conservation Food exempted from general revenue 3% in 1998 © Judith I. Stallmann

Source: DED

Economic changes affecting sales tax revenues Business cycles People not spending as large a percentage of their income on things that are subject to sales tax People spending a larger percentage of their income on services, most of which are not taxed Retail prices for many items have fallen resulting in lower tax collections Internet and catalog sales increasing ©Judith I. Stallmann

Fiscal 2005 appropriations sources Net general revenue$7.1 Billion (6.5 Billion is taxes) Federal funds$6.7 Billion Other funds$5.0 Billion Total$18.9 Billion

2005 Budget Summary The additional estate tax cut would be $45.5 Million or about.06% of FY 2005 expenditures

©Judith I. Stallmann

Internet taxes

© Judith I. Stallmann

Internet sales tax revenues Potential gains Catalog sales not currently taxed “Pure” e-commerce Gains or losses State and local: Standard definition of tax base is boarder or narrower than that currently used by state Local: Taxation at point of delivery when seller is in another local taxation jurisdiction © Judith I. Stallmann

from point of sale collections Data © Judith I. Stallmann

Data

Internet taxation Largest potential revenues are not consumer expenditures but business expenditures on the internet © Judith I. Stallmann

Sales tax holiday

Rank on state and local sales taxes as a % of income, 2002 StateRankState rateLocal option Arkansas75.125Co., city Kansas194.9Co., city Illinois356.25Co., city, other Indiana396None Iowa305Co. Missouri Co., city, other Nebraska285Co., city Oklahoma204.5Co., city Tennessee96 (8)Co., city © Judith I. Stallmann

Participating in sales tax holiday Cities in counties on the state border are more likely to participate Cities in counties that are participating are more likely to participate The number of cities in surrounding counties does not affect participation by cities © Judith I. Stallmann

Not participating in sales tax holiday Larger cities are less likely to participate— they have the retail and less competition from other cities Cities with higher sales tax rates are less likely to participate—they have more to lose If there are a large number of cities in a county a city is less likely to participate © Judith I. Stallmann

If the family spent the entire tax savings on tax-free items, for every $100 spent they could spend $7.53 more: 1/(1-tax rate) 1/(1-.07) 1/.93 = Tax holiday © Judith I. Stallmann

For every $100 spent on tax-free items, consumers have to spent an additional $100 on taxable items that they would not have otherwise spent for the city to break-even on tax revenues. Not many families can spend outside of their budgets to that degree. Tax holiday © Judith I. Stallmann

Thank-you