Varieties.
The term 'sales tax' denotes a compulsory levy upon the value or volume of goods or services exchanged. Several important varieties may be distinguished: (1) retail sales taxes, imposed upon the sales of tangible personal property which is purchased for direct use or consumption and not for resale. They may apply also to certain services rendered to consumers; (2) general sales taxes, applying to a broader group of transactions, including the sales of tangible personal property both at retail and for resale, and extending to the business of extractive industries, manufacturers, and wholesalers, and to the sales of realty and receipts from various service enterprises; (3) gross receipts taxes, including all the preceding types of levies and, in addition, taxes upon the sales of intangibles and upon receipts from personal or professional services; (4) gross income taxes, applying to all receipts, including payments such as wages, rent, and interest. A further distinction is to be made between sales taxation, which is broad in its application, and certain so-called 'selective' sales taxes such as the Federal and state excises upon cigarettes, liquor, playing cards, gasoline, and other specific commodities. Other taxes, which are based upon volume or value of gross sales, but which are restricted in application to certain specified groups, include manufacturers' sales taxes, wholesalers' sales taxes, and taxes upon chain stores.
Usage and Prevalence.
Sales taxation as a method of raising public revenue is not new. The practice of taxing the sales of commodities or services, either on a general or a selective basis, is traceable to the civilizations of antiquity. It is only since the World War, however, that sales taxation has become significant in the fiscal systems of leading nations. General sales taxes are now an important element in the national taxation of most European and South American countries, as well as in Australia and Canada. In the United States, except for selective excises, sales taxation has not been introduced as a Federal levy. In state and local finance, it has made fundamental changes in the revenue systems since it was introduced on a widespread scale following the year 1930.
At the close of 1937, sales taxes were in effect in 27 states and the District of Columbia. In more than half of these jurisdictions, the tax was a retail sales levy with rates ranging from 1 per cent to 3 per cent. A number of municipalities also entered the field. New York and New Orleans had 2 per cent taxes on retail sales. About half a dozen other cities levied smaller taxes of less fiscal importance.
Extensions and Revisions of 1938.
During 1938, Philadelphia joined the list of municipalities imposing a retail sales tax. A 2 per cent sales-and-use tax became effective March 1, 1938, with an expiration date set for Dec. 31, 1938. It applied to tangible personal property, gas, electricity, refrigeration, steam, telephone and telegraph, and receipts of restaurants and cafés. Food, drugs, newspapers and periodicals were exempt. In Louisiana, the state 2 per cent 'luxury tax' enacted in 1936 was replaced in 1938 by a 1 per cent sales tax applied to the sale or use of tangible property with exemptions on the sale of livestock and other farm products sold directly by producers from farms. Sales of natural gas, steam, water, electricity, newspapers, and fertilizers also were exempt. The tax in New Orleans was similarly revised. Rate changes on certain commodities and the exemption of several goods from sales taxes were effected in 1938 in Mississippi, South Carolina, Kansas, Ohio, and New York City. No other important alterations in sales tax legislation were made during the year.
Trend toward Permanency.
The rapid development of sales taxation in the United States since 1930 was due partly to the shrinkage in revenue from other tax sources, and partly to the need for additional funds caused by demands for public relief to those who suffered from the prolonged business depression. The emergency character of these levies when originally passed is indicated by the fact that most statutes contained expiration clauses providing for the automatic termination of the levy. However, as these laws were renewed, many of them omitted these clauses, so that recent legislation appears to be of a more permanent character. Moreover, although the sales taxes were at first collected mainly for temporary welfare and relief programs, they have gradually been applied as a source of revenue for education, social security, or general fund purposes to relieve property tax burdens.
Support and Opposition.
Support of sales-tax measures has usually come from real estate interests, highway interests, state employees, political leaders, and other groups which would stand to benefit either from uses of the revenues raised, or because of a shift in emphasis upon other tax sources. Opposition has been found principally among such groups as retailers, labor unions, and consumer associations.
In defense of sales taxes adopted by American states, it is said that from the fiscal and administrative standpoint they yield high, relatively stable revenues that are simply and economically collected. It is further argued that, because minute amounts are collected at the time of each purchase, the tax is almost burdenless or painless, and at the same time has the virtue of making everyone responsible for some contribution to government. Moreover, despite certain defects, in may be the only practicable way of raising needed revenue.
On the other hand, critics of sales taxation argue that it is a dangerous hidden levy which causes taxpayers to bear a burden which is frequently greater than they realize. The effect is regressive with respect to ability to pay, resulting in highest percentage burdens upon those with lowest incomes. To the extent that food, drugs, or other necessities are exempt, the tax, from this point of view, becomes more defensible. (See also TAXATION.)
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