Category Archives: Taxation

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.

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.