![handle is hein.journals/taxmmo23 and id is 1 raw text is:
TAX MEMO
No. 23 September, 1960
The Indirect Sales Tax Illusion
John F. Due, Professor of Economics, University of Illinois
One of the most long-lived illusions in
the field of public finance in Canada has
been resurrected in the July statements of
Ontario's Premier Frost relating to
Dominion-provincial fiscal relations. This
is the notion that if the provinces could levy
a sales tax on an indirect basis, they could
operate the tax much more satisfactorily
than the present sales taxes imposed in the
direct form. Specifically, the Premier pro-
posed: Failing action by the Federal
government on point (1), [which related to
the provinces' share of income tax collec-
tions] Ontario proposes that the Federal
government agree to initiate a constitutional
amendment enabling the provinces to impose
an indirect sales tax.1
NATURE OF AN INDIRECT
SALES TAX
A review of the proposal requires first
a statement of the meaning of the term
indirect sales tax. According to news-
paper reports, when the Premier was asked
to explain what he meant by such a tax, he
replied that he could not explain precisely.2
Presumably the term refers to a sales tax
imposed, technically, upon the vendor,
essentially as a charge for the privilege of
1 As quoted in the Toronto Globe and Mail, July 26, 1960.
'Tbid.
selling at retail, the amount of tax liability
being measured by the sales (or gross
receipts from sales) of taxable goods during
the period. Thus, the legal incidence of the
tax would rest upon the retailer, whereas
under the present direct form, as used in
seven provinces, the incidence is on the
purchaser, the retailer being designated as a
tax collecting agent for the province. The
coverage of the tax, so far as scope of tax-
able articles is concerned, is not affected by
the legal form of the tax. In the United
States, about half of the states using sales
taxes impose the tax in the indirect form as
a levy on the retailer for the privilege of
doing business at retail, while the other half
impose the tax on the sale to the consumer.
With this form, as in Canada, the legal inci-
dence is on the consumer, the retailer being
responsible for collection of the tax and
payment of it to the state.
The statement sometimes made about
the indirect form that it would involve
application of the tax to the firms' turnover
is almost meaningless; the tax would apply
to the figure of sales of taxable commodities,
which is also the basic determinant of the
vendor's tax liability under the present form
of tax. It is not at all clear what the users of
the phrase mean by turnover.
Additional copies of this Memo may be obtained at a price of 154.
CANADIAN TAX FOUNDATION](ViewImageLocal?handle=hein.journals/taxmmo23&div=1&collection=&method=preview&ext=.png&size=3)
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