Wednesday, November 19, 2008

Struggling States Let Retailers Keep $1 Billion in Sales Taxes

From Wall Street

Cash-strapped states are forgoing a total of roughly $1 billion annually in tax revenue because of little-noticed laws that permit retailers to keep a slice of the sales taxes they collect for the government, according to a new study.

Laws in 26 states, largely dating to the era before computerized cash registers, allow retailers to keep a small portion of sales-tax revenue they collect to compensate them for the expense of gathering the funds. Thirteen of those states impose no ceiling on the total amount kept by retailers.

Good Jobs First, a Washington, D.C., nonprofit research group that is often critical of tax subsidies for large corporations, examined data on such compensation plans.

The report comes as many states are facing their most severe budget pressure in years. Adjusted for inflation, state tax revenues were down 2.6% in the most recent quarter, according to a report released this month by the Nelson A. Rockefeller Institute of Government. States are looking to fill multibillion-dollar budget gaps through a variety of tax increases and service cuts, including tightening Medicaid eligibility and raising tuition at public colleges.

"There may be times when states are flush, when they can afford to let this leakage happen, but now that the states are facing a squeeze, we think they need to take a closer and harder look at this revenue loss," said Philip Mattera, the report's lead author and research director at Good Jobs First.

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