The Technique and Costs of Administration of Retail Sales Taxes

ly considered, efficiency appears capable of development to the highest point in connection with taxes fulfilling three principal conditions. First, liability for payment to government must be concentrated at a few points or in a few individuals. Secondly, the amount of tax payable by each taxpayer must be determined readily by some simple rule or formula. Finally, to prevent evasion the fact of payment must be susceptible of rapid and inexpensive determination. Most state gasoline taxes are exceptionally efficient, for example, because large sums are ordinarily collected from each of a relatively few refiners or wholesale distributors, the amount of taxation is a simple multiple of the number of gallons sold, and its payment can be verified by reference to gasoline production or importation figures. At the other extreme, collection of a net income tax without exemptions from all income receivers could be relatively inefficient owing to the enormous number of taxpayers, complexity of computing the tax (especially if there are numerous deductions and credits allowed), and the difficulty of checking evasions. Retail sales taxes fall between these hypothetical extremes. Their measure, gross receipts or gross sales, is relatively simple and ordinarily given by records kept for other purposes by persons subject to taxation. But high efficiency is prevented because they entail payment from many persons, each of whom contributes a relatively small amount. Ascertainment of payment of tax can be made only by auditing books and records at their situs-an expensive procedure. There is much paper work with little proportional return. It is theoretically possible to construct a highly efficient retail sales tax by creating broad lump-sum exemptions of receipts, and taxing only the few largest businesses in whose hands is concentrated the preponderant part of the tax base. But in so doing one runs counter to general concepts of equity, as well as to constitutional and statutory requirements of uniformity found in most states. Retail sales taxes will ordinarily be collected as a matter of legal necessity from nearly all retailers. Another escape from the necessity of dealing with multitudinous small businesses would be collection from manufacturers or wholesalers of commodities. This is barred from practical consideration because of jurisdictional factors. Agricultural states would collect but a fraction of the tax they now recover from retailers under this system, because the taxable transactions would be in large part outside their jurisdiction. Moreover, the various personal and professional service occupations have no wholesaling character and could not be reached, under such a law, except directly. The method is available for federal sales taxation but is unlikely to be used extensively by the states. In some states the tax is imposed directly on and is collectible from consumers by retailers, who in turn are required to remit their collections to the states. No state has attempted to collect directly from consumers (except the supplementary use taxes). States in all cases deal with retailers, as intermediaries, upon whom is placed the burden of accumulating the small driblets of revenue and remitting larger amounts to the state. Despite the imposition of this costly administrative burden upon retailers, only Colorado and Ohio have made provision in their statutes for compensation to vendors.3 Colorado allows vendors to retain 5 per cent of amounts collected from consumers, while Ohio sells its tax cards and receipts to vendors at a discount of 3 per cent from face 'This is in contrast with practice followed in connection with state gasoline and tobacco taxes. Compensation in the form of a percentage of the amount of tax collected is generally allowed taxpayers under these laws. Cf. The Gasoline Tax in the United States, 1934 (Bulletin No. 44. Public Administration Service, Chicago, 1935), p. 1617. Also unpublished manuscript by the author of The Tobacco Tax in the United States. 365 This content downloaded from 40.77.167.44 on Thu, 23 Jun 2016 05:19:41 UTC All use subject to http://about.jstor.org/terms THE JOURNAL OF MARKETING value. Viewed in perspective it is, of course, immaterial whether or not provision is made by statute to reimburse retailers, since their costs of remitting the tax are one of the costs of doing retail business and must in the long run be reflected to some extent in prices paid by the public. The only real difference is whether these costs are paid directly by the public when making purchases or indirectly through the public treasury. The general process of collecting retail sales taxes by government involves the distribution of tax return forms to retailers periodically, and the receiving of completed returns together with remittances of tax. Quantity of work to be performed depends largely upon the number of taxpayers and the frequency with which each must file a return. All except three of the fourteen states having only retail sales taxes require the filing of a monthly return, the remaining states requiring quarterly returns, excluding Ohio, which requires no returns at all. Monthly in place of quarterly returns triple the number of returns handled and multiplies paper work but has been generally preferred to hasten the flow of revenues after the enactment of sales taxes as well as spread it evenly throughout the year. There is also a technical advantage in increasing the frequency of payment by retailers, arising from the more frequent check on removals of business, delinquency and other factors that might occur under a quarterly return system. PRIMARY OPERATING DATA OF FOURTEEN

Topic: Taxation and Compliance Studies
Subfield: Economics and Econometrics
Field: Economics, Econometrics and Finance
Domain: Social Sciences