Taxation

The States Where Your Dollar Goes a Good Deal Further

Phillip Nones Demographics, Economics, Employment, Government, Social Commentary , , , ,

billsPeople have long suspected that many of America’s “richest” areas, based on salaries and other income, also happen to be where the cost of living is significantly higher.

Silicon Valley plus the New York City, Boston and the DC metro areas are some of the obvious regions, notorious for their out-of-sight housing and real estate prices.

But there are other factors at work as well in these high-cost areas, such as the cost of delivering goods to certain areas well-removed from the nation’s major trunk transportation arteries (think Alaska, Hawaii, Washington State and Minnesota).

And then there are state and local taxes. There appears to be a direct relationship between higher costs of living and higher taxation, too.

It’s one thing to go on hunches. But helpfully, all of these perceptions have been confirmed by the Bureau of Economic Analysis, using Personal Consumption Expenditure and American Community Survey data to do so.  Rolling the data up, the BEA has published comparative figures for all 50 states plus DC pertaining to the relative cost of living.

The approach was simple: consolidate the data to come up with a dollar figure in each state that represents how much $100 can purchase locally compared to the national average.  To get there, average price levels in each state have been calculated for household consumption, including rental housing costs.

Based on 2014 data, the figures have been mapped and are shown below:

100

So, just how far does $100 go?

The answer to that question is this: quite a bit further if you live in the mid-Continent region of the country compared to the Pacific Coast or the Northeast U.S.

In fact, $100 will get you upwards of 15% more goods and services in quite a few states. Here are the Top 10 states how much $100 will actually buy there:

  • Mississippi: $115.74 worth of goods and services
  • Arkansas: $114.16
  • Alabama: $113.51
  • Missouri: $113.51
  • South Dakota: $113.38
  • West Virginia: $112.87
  • Ohio: $112.11
  • Iowa: $111.73
  • Kansas: $111.23
  • Oklahoma: $111.23

At the other end of the scale, $100 is only going to buy about 20% to 30% fewer goods and services in the “Bottom 10” states compared to the “Top 10.” Here’s how it looks state-by-state:

  • DC: $84.60
  • Hawaii: $85.32
  • New York: $86.66
  • New Jersey: $87.64
  • California: $88.57
  • Maryland: $89.85
  • Connecticut: $91.41
  • Massachusetts: $93.28
  • Alaska: $93.37
  • New Hampshire: $94.16

Which states are closest to the $100 reference figure? Those would be Illinois at $99.40, and Oregon at $101.21.

I must say that those last two figures surprised me a bit … as I would have expected $100 to go less far in Illinois and Oregon.

Which of the state results surprise you? If any of them do, please share your observations with other readers.

Get Ready for Internet Sales Taxes

Phillip Nones Business, Economics, Government, Sales , , , , , , , , , , ,

Are sales taxes finally coming to the Internet?

Taxes on the InternetAfter years of fruitless attempts, it would seem so.

On July 15th, five senators introduced legislation on a bipartisan basis to make taxation of purchases made over the Internet a reality.

The legislation is called the Marketplace and Internet Tax Freedom Act, and it combines the efforts of two initiatives that had been separate before:  The Marketplace Fairness Act and the Internet Tax Freedom Act.

On the one hand, the legislation would keep access to the Internet tax-free by limiting what state and local governments can do to impose Internet access fees – at least for the coming decade.

On the other hand, it gives states the unambiguous ability to enforce their sales tax laws on businesses selling to buyers located within their borders – including if those purchases are made online.

In other words, the 44 states that currently have sales tax laws on their books will be able to collect online sales taxes.

Not surprisingly, the National Retail Federation and other trade groups that represent brick-and-mortar retailing are lauding the actions of the five senators in introducing the legislation.

David French, the NRF’s senior vice president for government relations, noted that it’s high time “for Congress to eliminate the sales tax disparity, which disproportionally impacts community and independent retailers.”

Unlike in prior years when Senate and House lawmakers seemed incapable of coming together in support of sales tax legislation, this time appears different.

Why?

I think part of the reason is the sense that, at the end of the day, it just isn’t fair for offline retailers to shoulder the burden of collecting taxes – along with being at a competitive disadvantage – versus online retailers who benefit from being able to offer lower the same products at a lower overall cost, while also benefiting from lower overhead costs in most cases.

The fact that the current legislative bill is being introduced by senators from across the political spectrum as well as a diverse geography (the Northeast, South and Midwest) — tells me that the legislation will go through — and that the days of tax-free online shopping are numbered.

It will be interesting to see what the ramifications might be if and when the legislation passes.  Will 24/7 armchair convenience trump the sudden 5%-7% higher cost to online consumers?

Those consumers can be notoriously price-sensitive … but they’re also creatures of habit and great lovers of convenience.

My prediction is that the new regulations will turn out to have little or no impact on the broader retail buying behaviors.  If you concur — or if you have a different opinion — please share your thoughts with other readers here.

Now that April 15th is behind us …

Phillip Nones Uncategorized , , , , , , , , , , , , ,

While we’re all catching our collective breath after filing our 2008 federal and state tax returns … it’s a good time to consider the most recent findings on Americans’ tax preparation behaviors.

You might expect that a significant portion of tax filers are now using “cheap ‘n easy” computer software programs like TurboTax to complete and file their tax forms.

Well … not so fast. A just-released survey conducted by Mediamark Research & Intelligence finds that only about 20% of U.S. tax filers used software programs. Another ~13% prepared their own returns the traditional way — by hand.

But fully half of respondents relied on outside professional help from a CPA, tax preparer or national chain resource like H&R Block — despite the fact that such services cost much, much more.

Why would half of all adults who file personal federal taxes feel the need to pay a lot more for professional assistance rather than take advantage of affordable software programs? There are a number of reasons: the complexity of the federal tax code … intimidating tax forms and instructions … concern about the safety and security of computerized software programs and electronic filing … and, not least, fear of retribution from the IRS for making an error.

The fact that many of the tax returns completed by professional preparers still contain errors doesn’t seem to make much difference. Many taxpayers would rather shift the responsibility of “filling out and filing” to somebody — anybody — else.

Another Win for the Tax Man?

Phillip Nones Uncategorized , , , , , , , , , , , , , , , , , ,

The threat of collecting sales taxes for Internet-based commerce has been rumbling in the background for years. But the latest news out of Washington may mean it’s finally coming to pass. And it’s generating its share of controversy.

A bill is expected to be introduced soon in Congress that would force Amazon, Overstock and other Internet retailers to collect sales taxes from their customers who shop online or through mail order. Co-sponsored by a Republican senator and a Democratic congressperson – which means almost certain passage – the bill would require states to inform retailers whenever there is a change in their tax code. This will have the effect of simplifying the tax collection and data reconciliation process.

State officials are understandably excited over the prospects of gaining additional sales tax revenue. And why wouldn’t they be? After all, sales tax receipts have dropped off in recent months due to a general decrease in retail activity. To them, this seems like a quick and easy way to replenish their coffers.

Plus, some brick-and-mortar retailers are surely happy about having a more level playing field. No longer will they have to compete at a disadvantage against online retailers that are saving their customers 6% or 7% sales tax on every purchase.

Of course, sales tax regulations have long been a thicket of complexity. In fact, a tidy number of sales tax collection software/service companies have sprung up over the years to help retailers make sense of it all. Not only are a myriad of different sales taxes set by individual states, but cities and other municipal entities within states can also set their own sales taxes as well.

To add even more to the potential confusion, each state has its own individual laws regarding what type of merchandise is taxable, or whether things like shipping expenses are taxable. So collecting the correct figure is often a tricky business, even for large online retailers.

As for sellers having multiple physical locations in addition to their online presence, depending on where those business locations are in relation to the online consumer’s place of residence can make for an even more complicated picture.

Are we having fun yet?

It’s no wonder online retailers intensely dislike playing the role of tax collector for the states. On the other hand, government officials absolutely love the idea that they can collect new funds without actually having to raise taxes.

And that’s what’s so interesting about this latest maneuver. No one is talking about an official change in tax law. Technically, online shoppers have always been required to keep their receipts and pay tax funds to their home state when filing the yearly state tax return. But be honest … do you know anyone who’s actually ever done that?

UPDATE (4/28/09): BusinessWeek is reporting that the particulars of the legislative bill are still being drafted. Of course, this isn’t the first time movement on a bill has been delayed in Congress. The magazine is also reporting that the bill’s passage is not a foregone conclusion … although opposition in this Congress appears to be lower than in previous ones. We shall see.