Multi-state – Is Consumer Behavior Shaping Evolution of Tax Incentives?

From Weekly State Tax Report – February 6, 2017
The Bloomberg BNA Tax Management Weekly State Tax Report filters through current state developments and analyzes those critical to multi-state tax planning.

By Hayes R. Holderness

Hayes R. Holderness is a visiting assistant professor at the University of Illinois College of Law, where he researches issues of state and local taxation and teaches courses on federal and state and local taxation.

Tax Policy

How consumers make choices in the market place is an important aspect of business. In this article, Hayes Holderness from the University of Illinois College of Law discusses consumer “tax salience” and its impact on state tax incentives.

When a state imposes a sales tax on a transaction, the cost of that transaction to the consumer increases. A rational consumer will presumptively take that cost into account when making her purchasing decision, and she may even refuse to enter into the transaction. For example, suppose Alice would purchase a BNA subscription as long as the total cost to her for the subscription is less than $100. BNA sets the cost of the subscription at $99.99, and Alice happily subscribes. Now suppose that Alice’s home state decides to levy a sales tax on such subscriptions, increasing the total price of the subscription to $105. Alice will no longer purchase the subscription, correct…?

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