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1 Mark Robyn, Handful of Proposals Would Push Colorado away from the Proper Tax Base 1 (2010)

handle is hein.taxfoundation/ffcaixz0001 and id is 1 raw text is: FISCAL FOUNDATIONF SA February 1 2010 FA C T No. 208 Handful of Proposals Would Push Colorado Away From the Proper Tax Base By Mark Robyn With state tax revenues in decline across the nation due to the economic downturn, lawmakers have been left scrambling for new sources of revenue. At the same time, elected officials are hesitant to raise broad-based taxes in bad economic times. This has led some lawmakers to pick through the tax code in search of less politically perilous tax increases. Reexamining some of the nitty-gritty tax policies buried deep within state statutes is a good idea. State tax codes are littered with targeted tax provisions for special interests. These breaks, called tax expenditures, are really just government spending funneled through the tax code. And they cost state governments tens of billions of dollars in revenue each year. A good example of this is the nearly ubiquitous use of tax incentives to lure film productions into states. Taxing Business Inputs Leads to Double Taxation While state tax codes are filled with many unjustifiable special interest carve-outs, all tax scholars agree that business-to-business transactions should be exempt from the general sales tax.2 A properly structured sales tax, which is really a form of consumption tax, applies to all consumer purchases but not to business purchases. The purpose of this exemption is not to promote business in general but rather to avoid the double taxation of some products. The retail price of every product includes the price of all the inputs used to create that product, so a retail tax hits all the inputs. It makes little sense, and in fact is economically damaging, to tax the inputs once on their way through the production line and again at the retail level. Colorado lawmakers have proposed a handful of tax changes as revenue raisers. Unfortunately, many of the proposals fall short of sound tax policy. Several of the proposals would expand the 1 William Luther, Tax Foundation Special Report, No. 173, Movie Production Incentives: Blockbuster Support for Lackluster Policy, January 2010, at www.taxfoundation.org/publications/show/25706.html. 2 John L. Mikesell, Thomas S. Neubig, Robert J. Cline, and Andrew Phillips , Sales Taxation of Business Inputs: Existing Tax Distortions and the Consequences of Extending the Sales Tax to Business Services, State Tax Notes, Vol. 35, No. 7, February 14, 2005. Available at SSRN: http://ssrn.com/abstract-665702. Mark Robyn is a staff economist at the Tax Foundation.

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