tax trends for the state judith i. stallmann stallmannj@missouri.edu the academy for leadership in...

Tax trends for the state

Judith I. Stallmannstallmannj@missouri.edu

The Academy for Leadership in Local Governance

July 14, 2006

Tax trends for the state and local governments

• Overview of taxes

• State tax trends

• State expenditure trends

• Sales tax holiday

©Judith I. Stallmann

% of income11.21% - 13.21%10.51% - 11.12%10.18% - 10.50%9.64% - 10.12%8.37% - 9.63%

State and Local Taxesas a percentage of income

©Judith I. Stallmann

Missouri’s tax rankings, 2002 All state and local taxes

% of income Rank

Per capita Rank

All taxes 9.52% 42nd $2667 35th

Property 2.44% 39th $684 37th

Sales and gross receipts

3.80% 22nd $1066 27th

Personal income 2.47% 24th $693 21st

Corporate income and franchise

0.20% 38th $57 36th

Charges and fees 2.44% 40th $685 41st

©Judith I. Stallmann

State taxes and expenditures

Missouri state revenues by source: 1980 - 2004

0%

20%

40%

60%

80%

100%

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Per

cent

age

Services, leases and rentals, andsales

Miscellaneous Revenues

Interest, Penalties and UnclaimedProperties

Licences, Fees and Permits

Total Taxes

Contributions andIntergovernmental

©Judith I. Stallmann

Missouri state sources of taxes: 1990-2005

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Per

cent

age

All other taxes

Licences, Fees andPermits

Corporate income andfranchise taxesSales and Use Tax

Individual Income Tax

©Judith I. Stallmann

Components of Missouri Gross Product: 1980 - 2004

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Per

cent

age

Personal Income

Wage and salarydisbursements

Propietors' income

Dividends,interest and rent

Personal currenttransfer receipts

©Judith I. Stallmann

Missouri state taxes as a percentage of gross state product: 1980 - 2004

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Per

cent

age

Individual incometax

Sales and use taxes

Corporate incomeand franchise taxes

Licences, fees andpermits

All other taxes

©Judith I. Stallmann

Missouri state taxes as a percentage of personal income: 1980 - 2004

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Per

cent

age

Individual incometax

Sales and usetaxes

Corporate incometax

Licences, feesand permits

All other taxes

©Judith I. Stallmann

Affected Taxes

• Each program is different

• Possible taxes include:– Corporate Income Tax

– Financial Institution Tax

– Corporate Franchise Tax

– Individual Income Tax

– Insurance Premium Tax

– Fiduciary Tax Source: DED

Pharm20%

Sr. Cit. PropTx

26%

O thers3%

Ins9%

DED46%

DED: $ 161 mil.DED: $ 161 mil.Pharmacy: $ 64Pharmacy: $ 64Sr. Cit. Prop Tx $ 86Sr. Cit. Prop Tx $ 86Insurance:Insurance: $ 27$ 27Others: $ 11Others: $ 11TOTAL $ 348 mil.TOTAL $ 348 mil.

Source: DED

FY02 Actual Tax Credits RedeemedBy Type/Agency

DED Tax Credits Authorized, Issued, Redeemed

$345,166,870$320,669,870

$447,167,201

$393,555,270

$499,648,670

$442,073,422

$217,557,224$197,811,004

$238,056,602$248,895,534

$352,341,851 $346,511,826

$91,058,685

$132,753,336$150,181,606

$160,908,088

$242,384,467 $242,555,468

$-

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

Fy-99 Fy-00 Fy-01 Fy-02 Fy-03 Proj FY04 Proj.

Authorized Issued Redeemed

Source: DED

Discretionary vs. Non-discretionary

• Discretionary:– Decision to fund an eligible project based

on impact.– How much to fund an eligible project– Amount of annual cap to approve

• Non-discretionary:– Uncapped programs: any eligible project

will be funded according to a formula.– Capped programs: eligible projects funded

on a first-come first-served basis until cap runs out.

Source: DED

DED Tax Credits Redeemedby Type of Approval

$58,867,113

$93,523,075 $92,854,655 $92,358,279

$138,110,482

$158,126,659

$32,191,572$39,230,261

$57,326,951

$68,549,809

$104,273,985

$84,428,809

$-

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

$160,000,000

$180,000,000

Fy-99 Fy-00 Fy-01 Fy-02 Fy-03 Proj Fy-04 Proj

Discretionary Non-Discretionary

Source: DED

State Sales Tax

• 4.225% Total state sales tax rate

– 3% General revenue

– 1% Proposition C—education

–.125% Conservation

–.1% Parks, soil & water conservation

• Food exempted from general revenue 3% in 1998

© Judith I. Stallmann©Judith I. Stallmann

Source: DED http://www.ded.mo.gov/researchandplanning/indicators/taxable_sales/index.stm

Economic changes affecting sales tax revenues

• Business cycles

• People not spending as large a percentage of their income on things that are subject to sales tax

• People spending a larger percentage of their income on services, most of which are not taxed

• Retail prices for many items have fallen resulting in lower tax collections

• Internet and catalog sales increasing©Judith I. Stallmann

Missouri expenditures by function: 1980 - 2004

0%

20%

40%

60%

80%

100%

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Perc

enta

ge

Article X Distribution

Intergovernmental

Debt service

Natural and Economic Resources

General Government

Capital Outlay

Transportation and LawEnforcement

Education

Human Services

©Judith I. Stallmann

Intergovernmental revenues and human services expenditures: 1980 - 2005

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Thou

sand

dol

lars

Contributions andIntergovernmental

Human Services

©Judith I. Stallmann

Fiscal 2005 appropriations sources

Net general revenue $7.1 Billion

(6.5 Billion is taxes)

Federal funds $6.7 Billion

Other funds $5.0 Billion

Total $18.9 Billion

2005 Budget Summaryhttp://www.oa.mo.gov/bp/budg2005/Budget_Summary.pdf

The additional estate tax cut would be $45.5 Million or about .06% of FY 2005 expenditures

Growth of Gross State Product (1992-2004) and Taxes as a Percentage of Income (1992)

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0.40

0.60

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1.60

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GSP growth rate 92-04 Taxes as % of income

Population, per capita income, and consumer price index growth rates: 1981- 2004

-5%

0%

5%

10%

15%

20%

25%

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

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2004

Per

cen

tag

e

US Consumer Price Index

MO percapita income

MO population

©Judith I. Stallmann

Internet taxes

StageAdoptedParticipated in negotiationsJoined laterNot participating No general sales tax

States adopting streamlined sales taxJanuary, 2004

© Judith I. Stallmann

Internet sales tax revenuesPotential gains

• Catalog sales not currently taxed

• “Pure” e-commerce

Gains or losses

• State and local: Standard definition of tax base is boarder or narrower than that currently used by state

• Local: Taxation at point of delivery when seller is in another local taxation jurisdiction

© Judith I. Stallmann

from point of sale collections

Data © Judith I. Stallmann

© Judith I. StallmannData

Internet taxation

• Largest potential revenues are not consumer expenditures but business expenditures on the internet

© Judith I. Stallmann

Sales tax holiday

Rank on state and local sales taxes as a % of income, 2002

State Rank State rate Local option

Arkansas 7 5.125 Co., city

Kansas 19 4.9 Co., city

Illinois 35 6.25 Co., city, other

Indiana 39 6 None

Iowa 30 5 Co.

Missouri 21 4.225 Co., city, other

Nebraska 28 5 Co., city

Oklahoma 20 4.5 Co., city

Tennessee 9 6 (8) Co., city© Judith I. Stallmann © Judith I. Stallmann

Participating in sales tax holiday

• Cities in counties on the state border are more likely to participate

• Cities in counties that are participating are more likely to participate

• The number of cities in surrounding counties does not affect participation by cities

© Judith I. Stallmann

Not participating in sales tax holiday

• Larger cities are less likely to participate—they have the retail and less competition from other cities

• Cities with higher sales tax rates are less likely to participate—they have more to lose

• If there are a large number of cities in a county a city is less likely to participate

© Judith I. Stallmann

If the family spent the entire tax savings on tax-free items, for every $100 spent they could spend $7.53 more:

1/(1-tax rate)1/(1-.07)1/.93 = 107.53

Tax holiday

© Judith I. Stallmann

For every $100 spent on tax-free items, consumers have to spent an additional $100 on taxable items that they would not have otherwise spent for the city to break-even on tax revenues. Not many families can spend outside of their budgets to that degree.

Tax holiday

© Judith I. Stallmann

Thank-you