Report indicates big increase in state sales taxes

State governments have boosted sales tax rates to the highest levels in 28 years, according to a new report by Vertex, an enterprise tax software company.

Vertex reports that the average state sales tax rate was 5.52 percent in the first nine months of 2010, which is slightly higher than the 5.48 percent recorded for last year, the previous record high.
Budget shortfalls are causing state and local governments to turn to sales taxes to make up the difference. Sales taxes generate more money overall than taxes on property or income. Sales taxes generated approximately $450 billion in 2008, according to the U.S. Government Accountability Office, while the numbers for property taxes and income taxes were $411 billion and $310 billion, respectively.
“Based on the rate level for the first nine months of 2010, and our internal forecasts for the last quarter of the year, it appears that the average sales tax rate will be at a new record high by December 31, 2010,” said John Minassian, a Vertex vice president.
State revenues are just starting to pick up, but only slightly, according to the National Conference of State Legislatures (NCSL) in a report issued last month.
Sales and use taxes make up nearly 32 percent of state taxes, the report states. Forty-five states levy this tax, and the outlook for collections is more optimistic than last year. Thirty-four states expect sales tax collections to rise above FY 2010 levels, with Colorado projecting a 14 percent year-over-year increase.
Colorado didn’t raise its sales tax rate this year, but dropped exemptions on items that previously went untaxed, such as candy and soda. The state dropped a property tax break for seniors and put limits on a tax credit for alternative-fuel vehicles, according to, which reports daily on state policy and politics.
Colorado also enacted what some call the Amazon tax, by applying state sales taxes to Internet purchases. The state required and other Web retailers to mail tax liability notices to their customers. In response, Amazon shut its Colorado affiliate program, hurting businesses that marketed Amazon products online, reported.
States could receive millions of dollars if they received taxes for online purchases, and the potential revenue source is a subject of political debates this season. In Idaho, the National Conference of State Legislatures (NCSL) estimates it could gain up to $103 million from online sales taxes, and a Superintendent for Public Instruction candidate wants online companies to tax customers upfront and send the money to the state, reported. The process has been fraught with legal difficulties in other states, however.
Virtually all states were in “survival mode” this year, according to Collectively, states were forced to eliminate more than $100 billion in funding gaps for the new fiscal year that started July 1.
Related articles:

You may like these other stories...

Did you know that the tax code allows you to claim tax deductions for household damage caused by thefts, vandalism, fires, floods, hurricanes, and others kinds of casualties? But the law imposes several restrictions.Relief...
Inversions: Loophole Is the ProblemJacob J. Lew, the U.S. Treasury Secretary, published an opinion piece in the Wall Street Journal that "the system has become full of inefficiencies and special-interest loopholes. That...
School tax breaks get House support as Democrats objectRichard Rubin of Bloomberg reported that the House of Representatives on Thursday voted to expand and simplify tax breaks for education as Republicans continue to pass...

Upcoming CPE Webinars

Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.
Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.