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State & Local Sales Taxes Hinder U.S. Competitiveness


Washington, DC — January 25, 2005 — State and local sales taxes imposed on businesses exceed $100 billion according to a new study released today by the Council On State Taxation (COST). These taxes, which total more than 40% of all state and local sales tax collections, are generally hidden and result in higher prices for consumers and fewer jobs for workers. The study includes state-by-state data on sales taxation of business inputs.

“State lawmakers work diligently to enact policies that support job growth and investment, but, unfortunately, their own tax systems frustrate job creation and penalize U.S. businesses that compete globally,” said Doug Lindholm, COST’s President & Executive Director. “These hidden sales taxes drive up the cost of producing goods and services in the U.S. and hinder our economic competitiveness.”

Sales Tax on Business Reduces Investment, Costs Jobs

“Imposing sales tax on business inputs violates several tax policy principles and causes a number of economic distortions,” said Bob Cline, co-author of the study and National Director of State and Local Tax Policy Economics for Ernst & Young. “This tax is an additional cost of doing business in a state, and it imposes a particular burden on businesses that sell outside the state as they are less able to pass the tax on in the form of higher prices. Consequently, they may be forced to reduce in-state investment and create fewer jobs.”

Although sales taxation of business inputs is not new, these taxes are increasingly important as more U.S. businesses look to sell goods and services globally. Due to the fact that foreign companies are rarely subject to similar taxes, U.S. businesses are placed at a competitive disadvantage. “Although taxes are only one factor in production costs, it is not an insignificant factor,” said Mr. Lindholm. “At a time when the U.S. businesses are struggling to remain competitive in a global marketplace, it makes no sense for state and local governments to penalize U.S. production through taxes on business inputs.”


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