State sales taxes on business-to-business purchases accounted for 41.7 percent of state and local sales taxes, according to a new study by Ernst & Young.
The study was done on behalf of the Council On State Taxation, or COST, a trade group pushing for lower taxes on businesses, and its affiliated State Tax Research Institute. It contends that the tax on “business inputs” creates “pyramiding” by taxing business-to-business transactions multiple times before final consumption takes place.
“State sales taxes apply to 21 percent of household consumption while taxing all business inputs, which would be exempt under a true consumption tax,” said COST president and executive director Douglas Lindholm in a statement. “These taxes on business inputs have economic consequences, and are not transparent in the total tax imposed on goods purchased by consumers. These issues have presented challenges when states have attempted comprehensive base-expansion legislation due to the proposed inclusion of business purchases in their sales tax bases.”
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by Michael Cohn
June 11, 2019