Cover of: Sales tax exemptions -- the erosion of the tax base by John Fitzgerald Due

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August 13, 2020 | History

Sales tax exemptions -- the erosion of the tax base

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The basic philosophy of a sales tax is that it should be a general levy on consumption expenditures. The early state sales taxes provided general coverage of commodity purchases, but they included many nonconsumption transactions, and they excluded services. There has been a limited trend over the years to add some services. But the major trend has been toward erosion of the base. Part of the trend, and particularly the exemption of industrial and farm machinery and equipment, can be defended on the grounds that these changes bring the taxes more in line with the basic philosophy of the sales tax. But the major form of erosion has been the steady increases in the exemption of consumption purchases, particularly food (once rare, now found in a majority of states), medicines, household fuel, other items, and sales to various nonprofit organizations. Most of these exemptions have been pushed by groups seeking to lessen regressivity of the tax -- but most do so in a fashion objectionable in many respects, compared to alternatives. Virtually all exemptions complicate the operation of the taxes. Legislatures have not been at all careful in establishing the exact form of exemptions in such a fashion as to minimize operational difficulties. There are two major lessons from experience: one exemption breeds another, and exemptions, once provided, are very difficult to remove. Despite the erosion, most of the taxes do remain relatively broad in scope.

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Cover of: Sales tax exemptions -- the erosion of the tax base
Sales tax exemptions -- the erosion of the tax base
1982, College of Commerce and Business Administration, Bureau of Economic and Business Research, University of Illinois at Urbana-Champaign
in English

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Sales tax exemptions -- the erosion of the tax base

This edition was published in by College of Commerce and Business Administration, Bureau of Economic and Business Research, University of Illinois at Urbana-Champaign in [Urbana, Ill.].


Edition Description

The basic philosophy of a sales tax is that it should be a general levy on consumption expenditures. The early state sales taxes provided general coverage of commodity purchases, but they included many nonconsumption transactions, and they excluded services. There has been a limited trend over the years to add some services. But the major trend has been toward erosion of the base. Part of the trend, and particularly the exemption of industrial and farm machinery and equipment, can be defended on the grounds that these changes bring the taxes more in line with the basic philosophy of the sales tax. But the major form of erosion has been the steady increases in the exemption of consumption purchases, particularly food (once rare, now found in a majority of states), medicines, household fuel, other items, and sales to various nonprofit organizations. Most of these exemptions have been pushed by groups seeking to lessen regressivity of the tax -- but most do so in a fashion objectionable in many respects, compared to alternatives. Virtually all exemptions complicate the operation of the taxes. Legislatures have not been at all careful in establishing the exact form of exemptions in such a fashion as to minimize operational difficulties. There are two major lessons from experience: one exemption breeds another, and exemptions, once provided, are very difficult to remove. Despite the erosion, most of the taxes do remain relatively broad in scope.

Edition Notes

Series
BEBR faculty working paper -- no. 868, BEBR faculty working paper -- no. 868.

ID Numbers

Open Library
OL24623171M
Internet Archive
salestaxexemptio868duej
OCLC/WorldCat
700752779

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