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1 Jared Walczak, Modernizing State Sales Taxes: A Policymakers' Guide 1 (2024)

handle is hein.taxfoundation/polimaker0001 and id is 1 raw text is: *%TAX FOUNDATION Modernizing State Sales Taxes: A Policymakers' Guide Jared Walczak Vice President of State Projects September 2024 Key Findings • The sales tax is the second-largest source of state tax revenue and an important source of local tax revenue, but decades of base erosion threaten the tax's share of overall revenue and have prompted years of countervailing rate increases. • A well-designed sales tax is more stable and economically efficient than most potential tax alterna- tives, except taxes on real property. • The taxation of intermediate transactions (business inputs) can turn that portion of the sales tax into a tax on production, driving up consumer prices through tax pyramiding and discouraging in-state capital investment. • Economic analysis supports employing a broad definition of business inputs for the purposes of ex- cluding them from the base. • Policymakers should explore sales tax base broadening to certain excluded goods and services (in- cluding newly arising digital products), particularly as an offset for tax relief elsewhere, but should be careful about overly broad inclusions that fall largely on intermediate transactions, as these changes can prove significantly more harmful than the taxes they were intended to offset. • States have significant room to reduce compliance costs for remote sales. • The United States is an outlier in the distortions within state-level consumption taxes, and simplifying, pro-growth reforms are overdue. The Tax Foundation is the world's leading nonpartisan tax policy 501(c)(3) nonprofit. For over 80 years, our mission has remained the same: to improve lives through tax policies that lead to greater economic growth and opportunity. TAX FOUNDATION 1325 G STREET, NW, SUITE 950, WASHINGTON, DC 20005 202-464-6200 1 taxfoundation.org

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