Category Archives: Taxation

Migration driven by jobs and demographic trends more than SALT deduction cap

Source: Marcia Van Wagner, Timothy Blake, Nicholas Samuels, Emily Raimes, Moody’s, Sector In-Depth, April 8, 2019
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Domestic migration patterns offer no discernible signs yet that the federal cap on state and local tax (SALT) deductions is causing residents to flee high-tax states, resulting in population loss (a social risk) and hurting states’ credit quality. Migration from high-tax states is lower than a decade ago and generally following the US as a whole, while many people are moving from one high-tax state to another. The impact of the SALT cap enacted in 2017 will be felt widely for the first time this tax season and possibly spur some out-migration, but jobs and demographic trends will continue to influence relocation patterns more than tax burdens….

Arizona Sports & Tourism Authority: AzSTA maintains key source of bondholder repayment with back-to-back wins in tax litigation

Source: Patrick Liberatore, Eva Bogaty, Leonard Jones, Moody’s, Issuer Comment, February 27, 2019
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On February 25, the Arizona Supreme Court affirmed a state appellate court’s 2018 order upholding the validity of a car rental tax levied by the Arizona Sports & Tourism Authority (AzSTA, A1 stable), a credit positive for the authority. The tax in Maricopa County (Aaa stable) comprised about 25% of AzSTA’s $54.9 million annual revenue pledged to bondholders as of the fiscal year ended June 30, 2018. The state Supreme Court also upheld the nullification a 2015 order by a lower court that the Arizona Department of Revenue (ADoR) must refund over $150 million of tax collections to car rental companies.

Taxing Cannabis

Source: Carl Davis, Misha E. Hill, Richard Phillips, Institute on Taxation & Economic Policy, January 2019

From the introduction:
State policy toward cannabis is evolving rapidly. While much of the debate around legalization has rightly focused on potential health and criminal justice impacts, legalization also has revenue implications for state and local governments that choose to regulate and tax cannabis sales.

For decades, analysts interested in the tax revenue potential of legalizing cannabis had to use unreliable survey data and speculation regarding how a legal market might operate. But this is changing. This month marks the five-year anniversary of the first legal, taxable sale of recreational cannabis in modern U.S. history. In January 2014, recreational cannabis establishments in Colorado opened their doors to the public, followed soon thereafter by businesses in Washington State, Oregon, Alaska, Nevada, California, and most recently Massachusetts. These states’ experiences with a tax that did not exist just a few years ago are providing invaluable information to lawmakers across the country as they consider legalizing and taxing recreational cannabis sales.

This report describes the various options for structuring state and local taxes on cannabis and identifies approaches currently in use. It also undertakes an in-depth exploration of state cannabis tax revenue performance and offers a glimpse into what may lie ahead for these taxes.

Local Governments and Economic Freedom: A Test of the Leviathan Hypothesis

Source: Adam A. Millsap, Bradley K. Hobbs, Dean Stansel, OnlineFirst, February 6, 2019
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From the abstract:
Brennan and Buchanan’s Leviathan hypothesis states that “potential for fiscal exploitation varies inversely with the number of competing governmental units” (p. 211) and that “total government intrusion into the economy should be smaller, ceteris paribus, the greater the extent to which taxes and expenditures are decentralized [and]…the smaller the jurisdictions” (p. 185). Using data for US metropolitan statistical areas, we provide the first local-level test of that hypothesis (that we are aware of) that uses “economic freedom” as the dependent variable, which provides a better measure of “total government intrusion into the economy” than the less comprehensive measures (taxes or spending) used in the previous literature. We find mixed support for the Leviathan hypothesis. The number of competing jurisdictions is positively associated with economic freedom, driven largely by the labor market freedom component as opposed to the government spending and tax components (the very measures used in the previous literature).

Consumption Taxes, Income Taxes, and Revenue Sensitivity: States and the Great Recession

Source: Howard Chernick, Cordelia Reimers, Public Finance Review, Volume 47 Issue 2, March 2019
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From the abstract:
This article uses an income-distributional approach to state tax sensitivity to examine the assumption that consumption taxes are more stable than income taxes. We estimate the 2007 to 2009 change in tax revenues as a function of state income distributions and tax burdens by income class. We estimate tax burdens as a function of income tax shares and consumption tax shares. We then simulate the change in tax revenues with tax shares at the national average. If high-income-tax states were to lower their reliance on this tax, the revenue decline during the recession would have been greater. For high consumption tax states, the revenue decline under higher income tax shares would have been smaller. Had they shifted toward consumption taxes, income tax reliant states would not have reduced the cyclical sensitivity of tax revenues during the Great Recession. The interaction between tax burdens and recession shocks by income class is key to these results.

Impact of Tax and Expenditure Limits on Local Government Use of Tax-supported Debt

Source: Sharon N. Kioko, Pengju Zhang, Public Finance Review, Volume 47 Issue 2, March 2019
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From the abstract:
This study seeks to broaden our understanding of the impact tax and expenditure limits (TELs) have had on local governments. We chose to focus on local government use of tax-supported debt as TELs are limits on the property tax base and related revenues, two essential components used to determine a government’s legal authority to issue tax-supported debt and its fiscal capacity to maintain long-term solvency. Using county-level data, our analysis finds TELs have a negative impact on local government use of tax-supported debt, especially if the government is subject to a limitation on assessed valuation or the property tax levy.

Who Are the Getters? The Federal Workforce and Low Income States Get the Most

Source: Laura Schultz, Rockefeller Institute of Government, February 1, 2019

In the recent report, Giving or Getting? New York’s Balance of Payments with the Federal Government, Rockefeller Institute evaluated how all fifty states compared in the tax revenue they sent to the federal government (receipts) and the levels of spending they received from the federal government (expenditures). Forty states had a positive balance of payments; they received more money from Washington than they sent. In our last blog post we looked at “the givers.” These states have high income levels and, as a result, pay more in payroll taxes than other states. These high tax burdens were not offset by high levels of federal spending, leading to negative balances of payments. In this post we take a closer look at the winners, the states with high balances of payments. Our analysis finds there are two categories of getters: states with large federal workforces and states with low incomes.
Table 1 shows the ten states with the highest per capita balance of payments. The ratio of expenditures to receipts tells us how much each state receives in federal spending for each dollar it sends in taxes. For every $1 Virginians pay in taxes, the residents receive twice as much in federal spending.

Here’s How U.S. Businesses Actually Used Their Tax Cuts

Source: Laura Davison, Bloomberg Businessweek, January 16, 2019

Republicans predicted a growth explosion while Democrats warned of fat-cat investors. Both sides were wrong.

On Jan. 1, 2018, the biggest, most sweeping U.S. corporate tax cut ever enacted went into effect. A year later, we’re able to see how businesses used all that extra cash.

The short answer: to buy back shares. The long answer is slightly more nuanced, but not by much.