Average Sales Tax Rate Paid by Americans in 2011 at Lowest Since 1967

USA Today reports that Americans paid a lower average sales tax rate (4.27%) in 2011 than at any time in recent history. Down from 4.63% five years ago and 5.18% in 1973, the average rate has been affected by the consumer shift toward purchase of nontaxable services and savvy shoppers’ tendency to use the internet to buy sales-tax-free goods.

The report cites high state tax rates (motivating consumers to buy elsewhere), deflation (which has lowered sales tax due to falling prices), and increased exemptions as other reasons why the average tax rate has fallen.

Economic Development and Texas Property Tax

MAXIMUS’s Ray Watson was a featured panelist during Estes & Gandhi P.C.’s 2012 Annual Property Tax Prospectus in January. The program, which was sponsored by Estes & Gandhi P.C., Colliers International, Comerica Bank, and Associa Title, included prominent business leaders, property tax attorneys, and real estate professionals from the North Texas area. The panel discussion featured viewpoints on Texas property tax specifically, the state tax structure in general, and its effect on economic development. Continue reading for a summary of that discussion.

States Lighten Tax Burden to Attract and Grow Business

An article appearing in today’s Wall Street Journal provides a telling commentary on the current competitive environment among the states with respect to attracting and retaining businesses.

Oklahoma Governor Mary Fallin announced on Monday that her state would lower its current income tax rate from 5.25% to 3.5% next year, with the 10-year-goal of abolishing the income tax altogether in order to make the state more attractive to business. At the moment, Oklahoma is competing with states like Texas (no income tax), Missouri (where voters may likely abolish the income tax in November), and Kansas (where the income tax rate is also being cut this year) to create the most pro-business, pro-growth environment in the heartland area.

State Estate Tax Round-up

This week, Forbes surveyed state estate tax changes in 2012 and looked ahead to see what the landscape would hold in 2013 and later. Some broad trends and interesting cases were identified:

22 states and Washington D.C. have estate and/or inheritance taxes. While several states raised the exemption in 2012 (North Carolina, Rhode Island, and Illinois), others lowered the exemption dollar amount significantly. These states included Connecticut and Vermont.

New Jersey currently has the lowest estate tax exemption ($675,000).

While several states are working to abolish their estate or inheritance taxes (Nebraska, Oregon, Tennessee), others, such as Ohio, have been successful. That state’s estate tax will be gone at the start of 2013.

You can check out this nifty map for an interactive view of current state estate taxes.

MAXIMUS will definitely be keeping an eye on this issue. We agree that states with budget shortfalls are looking for revenue anywhere they can find it, and lowering estate tax exemptions may indeed become a lever that legislators pull if finances become too pinched.

Resolution on Collin County Business Property Tax Abatement

We now have resolution on a Collin County, Texas initiative we were following last year that would have provided a 50% abatement on property taxes for 3 years to any new business opening on or after January 1, 2012.

On Friday, The Dallas Morning News reported (subscription required) that the tax incentive program was approved by the Collin County Commissioners Court, but in a less-sweeping form. In its present form, the plan gives the 50% break to any “new or growing businesses that generate at least $100,000 in tax value and at least five new jobs” and applies only to the county portion of the property tax bill.

Petroleum Engineer Demand Booms as Oil & Gas Industry Expands

We read a very interesting Reuters article today that addresses not only a particularly bright spot in the current job market but also the continuing boom in the oil industry here in Texas.

The explosion of drilling in the state’s shale and oil deposits has not only meant that companies have seen expansions in drilling and increased revenues but also that those working in the petroleum engineering field have become extraordinarily sought-after. Certainly, the steady rise in college graduates in this field indicates an increasingly healthy industry outlook, one we’ve certainly observed with respect to our own oil and gas clients.

Beware the Sample Audit

An auditor’s principal function with a sales/use tax audit is to determine whether sales/use tax has been correctly reported. To accomplish this task, an auditor should utilize appropriate procedures to correctly complete the audit in an expedient manner, thereby creating the least possible inconvenience to the taxpayer.

Detail Audit

A detail audit means that all sales and purchase transactions for the audit period are to be examined by the auditor. Any assessment resulting from a detail audit arises solely from the taxability of the transactions and whether tax was paid. In other words, because the audit was performed using detailed methodology, taxpayer arguments are limited to the substance of the assessment. Because one “can’t argue a detail audit,” procedural arguments are rare.

Sample Audit

Although statutory requirements vary by state, sampling procedures are generally used in an audit when:

• The taxpayer’s records are so detailed, complex or voluminous that an audit would be unreasonable or impractical;
• The taxpayer’s records are inadequate or insufficient so that a competent audit for the period in question is not otherwise possible; and/or,
• The cost of the audit of all detailed records of the taxpayer or the state will be unreasonable in relation to the benefits derived.

Unlike a detail audit, a taxpayer can attack a proposed assessment resulting from a sample audit based on substantive and procedural grounds. From a procedural standpoint, a taxpayer can challenge a sample if it can demonstrate that (1) a transaction within the sample is not representative of the taxpayer’s business operations; and/or (2) the sampling method used is not in accordance with generally recognized sampling procedures.

Taxpayers should avoid assuming that a selected sample is accurate and should thoroughly review the procedure used by an auditor in conducting a sample audit.