Category Archives: Taxation

Flat debt total signals cautious borrowing, despite infrastructure needs

Source: Ted Hampton, Chandra Ghosal, Emily Raimes, Nicholas Samuels, Timothy Blake, Moody’s, Sector Profile, State government – US Medians, June 3, 2019
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Total net tax-supported debt (NTSD) for the 50 states was virtually unchanged in 2018, as governments maintained a cautious approach to bond issuance and increased their reliance on operating revenue for transportation infrastructure. The $523 billion in NTSD marked the eighth straight year with minimal change, putting average annual growth at 0.6% since 2011.

As Airbnb grows, this is exactly how much it’s bringing down hotel prices and occupancy

Source: Tarik Dogru, The Conversation, May 24, 2019

…. Research I recently conducted with colleagues Makarand Mody and Courtney C. Suess studied Airbnb’s impact on hotels’ performance in 10 major U.S. cities to determine how the fast-growing company has influenced three key metrics: room prices, hotel revenues and occupancy rates. Our research included data from 2008 to 2017 in Boston, Chicago, Denver, Houston, Los Angeles, Miami, Nashville, New York, San Francisco and Seattle.

In those cities, the number of properties on Airbnb – from room shares to entire houses – surged from just 51 in its first year of operation to more to 50,000 five years later and to over half a million in 2017. ….

….[A]nother important factor is the lack of regulation Airbnb faced during its first decades, which gave it more flexibility and made it easier to add new properties to its inventory.

While this is now changing as cities clamp down, this provided Airbnb with a significant competitive advantage against the hotel industry. Indeed, the typical regulatory framework in cities across America means it can take several years to add a new hotel to the market and requires permits, adherence to safety codes and more tax collection…..

See also:
York County gets small revenue boost thanks to new Airbnb tax regulations
Source: Lindsey O’Laughlin, York Dispatch, May 29, 2019

Municipalities and state eye regulation for Airbnb, growing home-sharing industry
Source: Joe Cooper, Hartford Business, May 27, 2019

City exploring Airbnb zoning, tax questions
Source: Rosalind Essig, Journal Courier, May 20, 2019

Airbnb guests would pay sales tax under proposed bill
Source: Diane Rey, Maryland Reporter, March 3, 2019

It’s Getting Worse: The IRS Now Audits Poor Americans at About the Same Rate as the Top 1%

Source: Paul Kiel, ProPublica, May 30, 2019

As the agency’s ability to audit the rich crumbles, its scrutiny of the poor has held steady in recent years. Meanwhile, a new study shows that audits of poor taxpayers make them far less likely to claim credits they might be entitled to.

Related:
The Effects of EITC Correspondence Audits on Low-Income Earners
Source: John Guyto, Kara Leibel, Day Manol, Ankur Patel, Mark Payne, Brenda Schafer, May 2019

From the abstract:
Each year, the United States Internal Revenue Service identifies taxpayers who may have erroneously claimed Earned Income Tax credit (EITC) benefits and requests additional documentation from these taxpayers to verify these claims. This paper exploits random variation inherent in audit selection processes to estimate the impacts of these EITC correspondence audits on taxpayer behaviors. Roughly 80% of EITC correspondence audits in the analysis sample have full disallowances due to undelivered mail, nonresponse or insufficient response. Cases of disallowances with confirmed ineligibility make up 15% of EITC correspondence audits in the analysis sample. In years after being audited, taxpayers have decreases in the likelihoods of claiming EITC benefits and filing tax returns so that they subsequently forego benefits from potentially legitimate EITC claims, other refundable credit claims and withholdings. For every $1 that is audited, roughly $0.63 to $0.73 of tax refunds is unclaimed in years after the audits. Additionally, spillovers from audited taxpayers to other taxpayers arise because qualifying children on audited returns are more likely to be subsequently claimed by other taxpayers after the audits. These spillovers indicate that net overpayments may be less than gross overpayments since ineligible qualifying children on audited returns could be potentially eligible qualifying children on other taxpayers’ returns. Lastly, EITC correspondence audits affect real economic activity as wage earners have changes in the likelihood of having wage employment in the years after being audited.

The Economic Effects of the 2017 Tax Revision: Preliminary Observations

Source: Jane G. Gravelle, Donald J. Marples, Congressional Research Service, CRS Report, R45736, May 22, 2019

The 2017 tax revision, P.L. 115-97, often referred to as the Tax Cuts and Jobs Act, and referred to subsequently as the Act, was estimated to reduce taxes by $1.5 trillion over 10 years. The Act permanently reduced the corporate tax rate to 21%, made a number of revisions in business tax deductions (including limits on interest deductions), and provided a major revision in the international tax rules. It also substantially revised individual income taxes, including an increase in the standard deduction and child credit largely offset by eliminating personal exemptions, along with rate cuts, limits on itemized deductions (primarily a dollar cap on the state and local tax deduction), and a 20% deduction for pass-through businesses (businesses taxed under the individual rather than the corporate tax, such as partnerships). These individual provisions are temporary and are scheduled to expire after 2025. The Act also adopted temporary provisions allowing the immediate deduction for equipment investment and an increase in the exemption for estate and gift taxes…..

….This analysis examines the preliminary effects of the Act during the first year, 2018. In some cases it is difficult to determine the effects of the tax cuts (e.g., on economic growth) given the other factors that affect outcomes. In other cases, such as the level of repatriation and use of repatriated funds, the evidence is more compelling. This report discusses these potential consequences in light of the data available after the first year…..

Property Tax Exemptions for Nonprofit Hospitals: What Are They Worth? Do They Earn Them? Evidence From New York City

Source: Geoffrey Propheter, Public Budgeting and Finance, Early View, First published: March 25, 2019
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From the abstract:
This study estimates the property tax expenditure for nonprofit hospitals (NPHs) in New York City using Medicare and IRS data from 2011 through 2013. After comparing the estimates to various definitions of community benefits, it is concluded that NPHs generally earn their property tax break. Evidence is also presented that using book values is a reasonably accurate method for estimating the property tax expenditure nationwide. Finally, econometric analyses reveals that net income is negatively associated with community benefits, suggesting justification for taxing higher net income hospitals and reallocating the funds to similarly sized but lower net income hospitals.

The Impact of the Amazon Tax on Local Sales Tax Revenue in Urban and Rural Jurisdictions

Source: Whitney B. Afonso, Public Budgeting and Finance, Early View, First published: April 5, 2019
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From the abstract:
E‐commerce has become an integral part of Americans’ lives and while it offers many benefits, it also represents forgone sales tax revenue for governments. Using a difference‐in‐differences model, this analysis examines how the Amazon tax affected local sales tax collections in North Carolina and whether that impact has been greater for urban, rural, or tourism‐rich counties. The results suggest that the Amazon tax increased revenues and urban jurisdictions benefit most. This finding is important for practitioners and policymakers as they consider the impact of policy changes, such as the South Dakota v. Wayfair ruling, on revenue capacity and financial management.

Billionaire Taxes

Source: Michael Simkovic, University of Southern California Gould School of Law, USC Law Legal Studies Paper No. 19-7, Last revised: March 27, 2019

From the abstract:
Targeted ultra-high net worth wealth taxes can fund reductions in taxes on wages. Wealth taxes are harder to avoid than existing capital gains taxes and inheritance taxes, and can be more precisely targeted toward extreme wealth. Exit taxes to prevent capital flight are consistent with business law principles governing partnerships. Valuation disputes can be managed through existing property tax mechanisms and through private law provisions called “shotgun clauses.”

Most experts believe that wealth taxes are constitutional. The critical difference between wealth taxes and income taxes, the realization requirement, exists for administrative convenience, not as a constitutional requirement. Constitutional challenges can be discouraged by including in wealth tax legislation a savings clause that would create as a backup an economically equivalent income tax.

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.