COST Issues Study Discussing Sales Taxation of Business Inputs.

COST recently issued an economic study prepared by a third party surrounding the impact of extending sales tax to business services as well as an analysis of the current sales tax on business purchases. Some of the findings of the study include: (1) A number of states are considering extending the sales tax to more services, this could exacerbate the current economic distortions from the sales tax on business inputs; (2) The current sales tax on business inputs violates several tax policy principles of economic growth, efficiency, equity, and simplicity; (3) A sales tax on business inputs is an additional cost of doing business in the state, which companies must either attempt to pass on to their customers or reduce their economic activity in the state; (4) Most states do not tax services principally purchased by business due to the pyramiding and complexity it would create. The study concluded that a true retail sales tax would impose a uniform tax only on final consumption, which occurs at the household level. This true retail sales tax would not be imposed on the goods or services purchased by a business. (Sales Taxation of Business Inputs, Council On State Taxation, January 25, 2005)

Posted on February 15, 2005