Add state sales tax centralization to state tax court plan
As the Gov. Bobby Jindal Administration continues with its plans to revamp the state’s taxation structure and philosophy, on the issue of sales tax administration talk of small ball should give way to swinging for the fences.
Which, because of Art. VII, Sec. 3 of the Constitution would require amending it, meaning two-thirds majorities in each chamber and approval of a majority the people voting. Formulated properly and explained adequately, this reform should capture both kinds of assent, and thus the Jindal Administration needs to add this to a tax court plan so that simplification in the area of sales tax administration doesn’t stop at half-measures.
Recall that Jindal has not tried to sell the effort, essentially swapping sales for income taxes, as a way to boost immediately the state’s take from the people, but as a simplification device that will reduce the amount of compliance and procedural costs to allow increased investment and to encourage additional commitments to invest in state commerce. And there may be no area so rife with inefficiency in administration than with sales taxes.
Louisiana is just one of four states (of which one, Arizona, collects for most entities at the state level) where local taxes are levied, collected, audited, and adjudicated at the local level. This means, for example, that for a retail operation doing business in every parish of the state, 64 different protocols must be followed with 64 separate remittances on a frequent basis must be produced and delivered – in addition to the separate state levy.
The lack of standardization can be maddening. Besides having to cut so many different payments, procedures to set up business, handle certain transactions, and close business differ among jurisdictions. For example, from each and every of the local collectors, which technically is the sheriff, a retailer must find out what exemptions exist, whether resale certificates serve as proof of an exempt transaction, and which particular state Department of Revenue rulings are observed.
The Jindal Administration has floated one simplification idea in this area, to have a dedicated state tax court, as is the case in 18 states presently that would take tax disputes regardless of from where in the state. Currently, a dispute begins in a state district court. Local governments that perceive their district courts tend to rule in their favor may resist this idea, but surely cost savings would result by unclogging district courts of these cases, and the simplification would appeal to retailers across districts.
But it needs to go beyond just that by proposing the centralized collection and processing of all sales taxes, following the model practiced by almost every other state. This way, payments go to just one place, which also would serve as a repository of information about different rates and exemptions, and also could create standardized revenue rulings followed statewide. Not only should this reduce dramatically compliance costs, but also it probably would do a better job of preventing leakage of uncollected tax revenues that might slip through the cracks with such an uncoordinated system as at present.
Naturally, whenever power shifts away from political entities that may raise opposition from them, in this case the sheriffs. But the experience of other states shows many tax-related duties from which the agencies or those like them that exhibit power, and perhaps even draw in revenues, can remain in the hands of sheriff’s departments. For example, tax delinquency sales for local jurisdictions still could be performed by sheriffs. With a reform structured that way, sheriffs should not put up more potential opposition than would override the obvious benefits of centralization.
Posted by Jeff Sadow at 10:50