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Consumers’ Share and Producers’ Share

79

Abstract - We estimate, for each state with a general sales tax, thepercentage of that tax that is levied directly on final consumptionspending of the state’s residents. State by state, the consumers’ shareranges from 28 to 89 percent. For all states together, it is 59 percent,findings that generally agree with expectations and with otherestimates for single states. Most of the remaining sales tax is onproducer inputs. Between 1979 and 1989, the consumers’ share in-creased for 28 states, fell for 17 states, and was unchanged in 1state.

INTRODUCTION

While the state general sales tax is a tax on final consumption, its base also includes substantial sales to busi-

nesses, raising the specter of tax pyramiding/cascading. Sup-pose, for example, that a state taxes electricity used in pro-duction. Depending on market conditions, a manufacturer’sproduction costs, and ultimately its selling price, might in-clude tax already paid. Taxing the output at retail imposes a“tax more than once on the same piece of value added”(Graeser and Maury, 1992).

Besides current production costs, “state and local sales taxesextend to the acquisition of capital assets. They are far fromuniform across investments” (Joulfaian and Mackie, 1992).Joulfaian and Mackie found that national average effectivesales tax rates for different types of business equipment andstructures varied from 5.9 percent to zero. State-to-statedifferences in tax rates and in taxation or exemption of capi-tal purchases add further distortions, especially in locationdecisions. These and other examples (such as tax incidenceand tax exporting) illustrate the importance of recognizingthat sales taxes affect business purchases, as well as con-sumption, and of knowing the amount of sales tax on eachpart.

This paper reports estimates, for each state with a generalsales tax, of how much of that tax was levied on personalconsumption spending of in-state residents in 1989. (Hereand henceforth, reference to “states” with a general sales taxincludes the District of Columbia.) These update my earlierestimates for 1979 (Ring, 1989), incorporating several im-

Consumers’ Share and Producers’ Shareof the General Sales Tax

Raymond J. Ring, Jr.School of Business,University of SouthDakota, Vermillion, SD57069

NATIONAL TAX JOURNAL

80

provements in data and methodology. Thenext section briefly explains the improve-ments and shortcomings. The section af-ter that contains the estimates and ananalysis of them. The paper concludeswith a summary and conclusions.

METHODOLOGY

The consumers’ share of the generalsales tax (SHARE) is given by

[1] SHARE = CP/(CP + BP)

where CP represents sales tax on pur-chases by resident consumers and BP rep-resents other sales tax revenue. BP in-cludes primarily business purchases, butalso any other items a state taxes, such aspurchases by governments and nonprofitorganizations. For a thorough discussionof SHARE and the factors that affect it,please see Ring (1989).

To estimate each state’s SHARE in 1989,we used 1990 U.S. Census data on thenumber of each state’s households in 1989income classes (U.S. Department of Com-merce, 1993), Consumer Expenditure Sur-vey (CES) tabulations of average 1989spending by consumer units in eight in-come classes (U.S. Department of Labor,1991, Table 1), and information on howeach state defines its tax base. (AppendixB lists sources of state-specific informa-tion.) See Ring (1989) for a detailed expla-nation of the methodology and elabora-tion of its advantages and shortcomings.The major advantage is the ability to ac-count for state-to-state differences, provid-ing consistent estimates of SHARE for allstates.

Improvements

This study incorporates several im-provements over my earlier work. Theearlier study used 1972–3 CES data“updated” to 1979 (Ring, 1989); the esti-mates presented here incorporate actual

1989 CES data. This is unlikely to greatlyaffect the results, but does increase confi-dence in the estimates.

This update also includes several refine-ments in how each state defines its salestax base. Ring (1989) fit all states into gen-eral tax base categories according towhether they taxed or exempted food athome, clothing, utilities, and gasoline.This update retains those general catego-ries, but distinguishes state-by-state treat-ment of four utilities (electric; natural gas,fuel oil, etc.; water and sewer; and tele-phone), instead of treating each state astaxing or exempting all utilities. Ring as-sumed that all states taxed the sameconsumer services: a few services taxedby nearly all states in 1979. Greater detailin the 1989 CES (70 spending categoriescompared to 41 in the 1972–3 CES) allowsus to account for each state’s treatment ofnine categories of consumer services. Wealso now include more precise treatmentof alcohol, tobacco, prescription drugs,and nonprescription drugs. Table 1 indi-cates the broad categories into which eachstate falls; the finer distinctions used forutilities, services, alcohol, etc. are availableupon request.

We also treated unrelated individualsdifferently for this study than for the ear-lier one. Earlier, we used the number ofunrelated individuals (from the Census)directly, treating each as a “consumerunit” as defined in the CES. For this study,we distinguish financially independentconsumer units from those that pool theirincome. Appendix A explains this adjust-ment. Without it, the number of consumerunits (and thus estimated consumerspending) would be understated.

The CES spending figures include salesand excise taxes; without adjustment, ourmethodology would overestimate theconsumers’ part of the sales tax base. Ad-justing Joulfaian and Mackie’s 1987 esti-mates (1992), we find the weighted aver-age state and local rate (weighted by grossstate product (GSP)) for states with a gen-


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EDHCBABBJGECFDEBHBBAFAEEDBAHCHBBEAAEHEBEBEBEBH

TABLE 1CONSUMERS’ SHARE CALCULATIONS FOR 1989

AlabamaArizonaArkansasCaliforniaColoradoConnecticutWashington, D.C.FloridaGeorgiaHawaiiIdahoIllinoisIndianaIowaKansasKentuckyLouisianaMaineMarylandMassachusettsMichiganMinnesotaMississippiMissouriNebraskaNevadaNew JerseyNew MexicoNew YorkNorth CarolinaNorth DakotaOhioOklahomaPennsylvaniaRhode IslandSouth CarolinaSouth DakotaTennesseeTexasUtahVermontVirginiaWashingtonWest VirginiaWisconsinWyoming

TotalaTax base key:

A: exempt food, clothing, utilities, gasolineB: exempt food, utilities, gasolineC: exempt food, utilitiesD: exempt food, gasolineE: exempt utilities, gasolineF: exempt foodG: exempt utilitiesH: exempt gasolineJ: exempt none

TaxBasea

73506053605844506428626854596754515760625856666460446250666260666664596161635363567049896254

59

Consumers’Share

(Percent)

970.81,794.8

756.212,681.4

733.32,066.6

434.06,930.12,264.71,006.2

351.83,765.72,475.1

883.2799.4

1,230.51,443.4

461.51,836.21,902.53,137.01,974.41,022.91,743.9

470.3666.7

3,016.9848.1

5,793.91,672.7

234.33,401.8

936.73,947.2

377.21,315.4

247.22,194.08,055.9

667.0152.7

1,585.53,088.4

554.71,833.4

142.6

95,888.0

TotalSales Tax

($m)

709.5893.4454.0

6,679.5441.2

1,205.8191.8

3,448.51,438.7

280.6218.9

2,574.41,348.3

519.5535.1666.8737.0264.8

1,104.71,176.31,833.51,112.9

672.91,119.5

283.2294.2

1,857.2428.1

3,818.71,036.5

141.52,258.1

616.42,533.0

222.7801.4149.6

1,391.24,296.1

421.185.7

1,115.61,505.4

4961,136.9

76.6

56,560.5

Consumers’Sales Tax

($m)

4.005.004.004.773.007.756.006.003.754.005.005.005.004.004.135.004.005.005.005.004.006.006.004.284.005.756.004.754.003.005.755.004.006.006.005.004.005.506.005.094.003.506.506.005.003.00

TaxRates

(Percent)


82

eral sales tax to be 6.06 percent in 1989.1

To account for the over-estimate, we di-vided each state’s estimated consumersales tax base by 1.0606.

The CES figures also include travelspending, so our CP estimates (as describedso far) include what each state’s residentsspent out of state. State sales tax revenuesinclude taxes paid by nonresidents, whichare thus included in BP. To adjust for bothof these, we used Mutti and Morgan’s(1983) estimates of “General Sales TaxesPaid by Residents Traveling Out-of-State”and “General Sales Taxes Paid by Out-of-State Travelers,” adjusting them to accountfor state taxes only and for growth between1980 and 1989. This adjustment removesone of the sources of uncertainty in howclosely BP approximates business pur-chases, leaving government and nonprofitpurchases as the only potentially signifi-cant elements besides business purchases.

Limitations

This study suffers from several limita-tions. Due to the absence of state-specificCES data, we must attribute nationalspending patterns to each state. For morediscussion of this problem, please see Ring(1989).2 The CES under-reports consumerspending, which in itself might be ex-pected to result in underestimates ofSHARE. However, both the Census andthe CES suffer from under-reporting ofincome. Absent any good way to adjustfor these problems, we must hope thatthey are roughly offsetting.

The adjustment to reconcile Censushouseholds and CES consumer units(Appendix A) should provide better esti-

mates (than were in Ring (1989)) of thenumber of consumer units in each incomeclass. Unfortunately, there is no clear wayto adjust for the fact that CES consumerunits will have lower incomes (and thusspend less) than will Census nonfamilyhouseholds. Consequently, this methodstill somewhat overstates spending. Themagnitude of this overstatement shouldbe relatively small.3

FINDINGS

We turn now to the findings, how theycompare to independent estimates andhow SHARE changed between 1979 and1989. As Table 1 shows, in 1989, SHAREranged from a low of 28 percent in Hawaiito a high of 89 percent in West Virginia,and averaged 59 percent for all states. (Fig-ure 1 illustrates regional variations in thevalues of SHARE.) All estimates meet thesimple—but critical—a priori conditionthat they be less than 100 percent.

Comparison to 0ther Estimates

Given the uncertainties discussedabove, it is important to test our method-ology by comparing these estimates toindependently produced ones for singlestates. Santi (1994), using a method muchlike ours, but more aggregated data, esti-mated the 1989 consumers’ share to be61.7 percent for Arkansas, close to our 60percent. The Minnesota Department ofRevenue (1993), using a somewhat differ-ent technique, found a 1990 consumers’share of 54 percent for sales tax and mo-tor vehicle excise tax together (which isconsistent with the method used here);

1 Joulfaian and Mackie (1992) estimated 1987 local general sales tax rates for each state and added statutorystate rates. We used state rates and kept Joulfaian and Mackie’s local estimates, to estimate effective state andlocal rates for states with a general sales tax. (Effective local rates probably also increased slightly between1987 and 1989.) Our estimate of 6.06 percent in 1989 for states with a general sales tax compares to theirfinding of 5.89 percent for all states in 1987.

2 Another possible approach would be to use regional CES spending data. However, each of the four regionsreported in the CES includes widely different states, and it is not clear that regional averages approximateindividual states’ spending any better than do national averages.

3 Nationally, nonfamily households account for about 40 percent of total households.

Consum

ers’ Share and P

roducers’ Share

83


84

this is also close to our 56 percent estimatefor Minnesota. Derrick and Scott (1989),using a “technique comparable to thatused” in Ring (1989), found a 44 percentconsumers’ share for Maryland in 1986–7, substantially different from our 60 per-cent. Derrick and Scott did not includevehicle purchases in their estimates; wedid include vehicle purchases, but thisdifference is unlikely to account for thediscrepancy. It appears from their descrip-tion that they used more aggregated data.It is not clear whether they used 1986–7household distribution figures or unad-justed Census figures for 1979. If the lat-ter data were used, that could explain theirlower estimate.

In the only other application to all statesof a methodology roughly similar to thatused here, Uhimchuk estimated percentof “Sales Tax Falling on Consumer Pur-chases” in 1982 (1986). Uhimchuk’s val-ues range from 33.80 percent (Wyoming)to 85.89 percent (West Virginia), with a na-tional average of 61.57 percent.4

Several authors have directly estimatedthe producers’ share.5 In making compar-isons, it is important to keep in mind thatthe implied producers’ share generatedhere (1.0 – SHARE) includes sales to gov-ernmental and nonprofit entities (for thosestates that tax them). A Texas study found“about 46 percent” producers’ share for

that state in 1987. (“Texas Business Taxes,”1988). Using a “Dynamic AnalysisModel,” Clayton-Matthews (1993) esti-mates that “Massachusetts’ businessespay roughly 22% of total sales and excisetax revenues.” A study of Iowa found aproducers’ share of 39 percent (Due andMikesell (1994), citing a study by KPMGPeat Marwick). It is not clear whetherthese estimates include sales to nonbusi-ness entities; except for Massachusetts,they probably do not include sales to non-resident consumers.6 For Texas and Iowa,the sums of SHARE and these indepen-dently developed estimates of producers’share are close to 100—surprisinglyconsistent, given the widely varyingmethodologies. The Massachusetts esti-mate is less consistent.

Producer Exemptions

Everything else equal, states with moreconsumer exemptions have lower valuesof SHARE. However, Table 2, with statesarranged by consumer tax base categories,reveals no such relationship. The “Exemp-tions” columns show why: states thatexempt more consumer purchases alsotend to exempt more business purchases.7

Table 2 also shows that, within consumerexemption categories (i.e., holding con-stant those legal provisions that affect CP),

4 Uhimchuk (1986) used less detailed and more aggregated data (e.g., average income for each state, while weused eight income classes). Uhimchuk’s data sources were less closely related to what was being measured.

5 For earlier estimates not discussed here, see Ring (1989).6 Mutti and Morgan (1983), using “travel data, broken down by the place of a trip’s origin” estimate “General

Sales Taxes Paid by Out-of-State Travelers” at 3.9 percent of total general state and local sales taxes in 1980, forall states together. For individual states, the proportion ranges up to about 11 percent for Hawaii, Nevada,and Washington, D.C. (calculated from their Tables 1 and 2).

7 In the “Exemptions” columns of Table 2, states indicated by “X” define the sales tax base more narrowly; thatis, they define the exemption more broadly, as follows.

DU (direct use/ingredient test): States with X allow exemptions for business inputs “directly used in pro-duction” of items that will then be subject to the sales tax. Other states exempt only items that become a“physical ingredient of the final product.” All states exempt purchases for resale (Fisher, 1996). See also Dueand Mikesell (1994).

IE (industrial equipment): States with X fully exempt manufacturing and industrial equipment purchasesfrom the general sales tax. Others allow partial or reduced rate exemptions as indicated.

MU (manufacturing utilities): States with X fully exempt manufacturers’ purchases of electricity, naturalgas, etc. from utilities.

NP (nonprofit organizations): States with X provide “exemption for religious, charitable, and educationalnon-profit organizations” (Mikesell, 1992).


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TABLE 2PRODUCERS’ AND NONPROFIT EXEMPTIONS, 1989

TaxBasea

Exemptionsb

DU IE MU NPStateConsumers’

Share (Percent)AAAAAABBBBBBBBBBBBBCCCDDDEEEEEEEEEEEFFGHHHHHHJ

PennsylvaniaMassachusettsNew JerseyRhode IslandConnecticutMinnesotaOhioWisconsinNorth DakotaColoradoMarylandMaineVermontKentuckyTexasFloridaWashingtonWashington, D.C.NevadaIllinoisNew YorkCaliforniaNebraskaIowaArizonaWest VirginiaAlabamaVirginiaKansasOklahomaMississippiMissouriTennesseeUtahIdahoSouth CarolinaMichiganIndianaHawaiiNorth CarolinaSouth DakotaArkansasWyomingLouisianaNew MexicoGeorgia

64626259585666626060605756545350494444686653605950897370676666646363626158542862616054515064

XX

XXX

X

X

X

XX

X

X

X

XXXXXPXXPXXXXN

N

XX

NXXXPXXXPNXNXXXX

P

X

XPN

XXXXXXXXPXXP

PXXXXXXXXXP

XXXXXP

PXXXXXX

XP

XXXXXXXX

XX

XXXX

XX

X

XX

XX

X

X: fully exemptP: partial exemption or reduced rateaTax base index: see Table 1.bType of exemption:

MU: manufacturers’ utilities

See footnote 7 for more detail.

DU: direct use testIE: industrial equipment

NP: nonprofit organizations


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states that exempt more purchases by pro-ducers and nonprofit entities (i.e., stateswith lower values of BP) generally havehigher values of SHARE, as expected. Formore explanation of these patterns, seeRing (1989).

Comparison to 1979 Estimates

The overall value of SHARE in Table 1is the same as its 1979 counterpart; how-ever, this is deceptive, because the 1979estimates were not adjusted for sales taxincluded in the CES data, for residents’out-of-state purchases, or for nonresi-dents’ in-state purchases.8 Without thoseadjustments, the 1989 figures would beabout three to six percentage points higherthan those in Table 1. Differences between1979 and 1989 estimates for individualstates can be attributed to changes inmethodology, tax rates, tax base defini-tions, and economic conditions.

SHARE increased for 28 of the 46 states,fell for 17, and remained the same for one.Nine states saw increases of nine percent-age points or more; nine had decreases oflike size. (This somewhat arbitrary criteri-on was guided by the standard deviationof the differences, which is 9.3.)

One likely methodological source ofchange is that, for the 1979 estimates, weassumed that all states taxed only a fewservices (and all treated services thesame), but for 1989, we included moreconsumer services (and included differ-ences in how each state treats services).This improvement should (ceteris paribus)make 1989 estimates higher for thosestates that tax more consumer services.For comparing 1979 and 1989 estimates,we used Mikesell’s (1991) classification ofstates according to how broadly they taxservices. Of the 24 states in Mikesell’sbroadest three classes, six saw SHARE in-

crease nine points or more. Of the 22 statesthat tax very few services, only 3 had suchhigh SHARE changes, but other factors(discussed in the next paragraph) explainthese “outliers.”

Two states with narrow service taxationbut large changes in SHARE had propor-tionately large increases in the sales taxrate. Oklahoma’s rate doubled from 2 to4 percent and its value of share rose by 15percentage points; North Dakota’s raterose from 3 to 5.75 percent and its SHAREclimbed 20 points (the greatest increase).Georgia’s rate rose less dramatically (3 to3.75 percent) and its SHARE rose by 9points.

Tax rate increases appear to help ex-plain other changes in SHARE. Thirty-onestates saw rate increases between 1979 and1989; SHARE rose for all but eight of them.Of the 18 states that raised rates by morethan one-fourth, none experienced a de-cline in SHARE. This suggests that increas-ing the sales tax rate causes an increase inSHARE, probably because it is easier forbusinesses to avoid the sales tax than forconsumers to do so. When a state raisesits rates, some businesses, especiallymultistate entities, may (at least over time)move heavily taxed activities from thatstate to other places that tax the activitiesless heavily.

Tax base changes also affect SHARE.Louisiana added food to its sales tax base,which helps explain its 16-point increasein SHARE; raising the rate by one-third,taxing a substantial amount of services,and (perhaps) adding utilities also con-tributed to this large increase. Three statestook food out of their tax bases and in-creased rates modestly; two saw veryslight increases in SHARE; and one had asmall decrease. The one state that ex-empted food but did not change its ratesaw a larger—albeit still modest—in-

8 The overall value of SHARE in Table 1 is not adjusted for residents’ out-of-state purchases or for nonresidents’in-state purchases, because for all states taken together, these should “wash out” (except for purchases by thefive states with no general sales tax). Summing the third and fourth columns of Table 1, then calculatingSHARE, gives a value of 58.


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crease of six percentage points. Most otherbase changes between 1979 and 1989 in-volved adding or deleting gasoline orutilities, affecting business purchases aswell as consumer purchases, thus creat-ing ambiguous a priori expectations.

States also changed the business part ofthe tax base, affecting the denominator ofSHARE. In the most common change be-tween 1979 and 1989, 16 states switchedfrom the direct use test to the ingredienttest,9 broadening the producers’ part ofthe base and, ceteris paribus, decreasingSHARE. Of these, seven did not changetax rates or increased them only slightly.SHARE fell, as expected, for all but one; itfell by nine percentage points or more forfour of these. The other nine states thatswitched to the ingredient test also raisedrates by one-fourth or more; SHARE rosein all but two, despite broadening of thebusiness part of the sales tax base, againsuggesting that rate increases affect busi-ness purchases more than consumer pur-chases.

Two states that made the oppositechange (from ingredient test to direct use)and raised tax rates experienced increasesin SHARE, as expected. New York madethe same base change (but no rate change)but experienced a small, unexplained de-crease. This may fit an anomaly of twonearby states: Massachusetts and Con-necticut saw large drops in SHARE, withno rate or (major) base changes. Majorshifts in economic conditions may haveaffected all three states similarly.

SUMMARY AND CONCLUSIONS

On average, in-state resident consum-ers pay (directly) about 59 percent of stategeneral sales tax revenues. Most of theremainder is sales tax on business pur-chases, with sales to governments andnonprofit organizations accounting for therest. Consumers’ shares range from 89

percent in West Virginia to 28 percent inHawaii. Results generally agree withother researchers’ findings for specificstates. Because states that exempt moreconsumer items usually also exempt moreproducer goods, consumers’ share haslittle relationship to how broadly the taxbase is defined.

Changes in consumers’ share estimatesfor 1979 and 1989 generally fit a priori ex-pectations, reflecting changes in method-ology and in tax base definitions. One in-triguing result (and—we hope—a topic offuture research) is the suggestion thatstates that substantially raise sales taxrates see an increase in consumers’share—perhaps because businesses aremore successful than consumers in avoid-ing the tax.

Treating the general sales tax as aconsumption tax—when business pur-chases account for over a third of its base—overlooks potentially major ramifications,beginning with cascading. Widely vary-ing effective tax rates on business inputsdistort resource allocation among indus-tries and geographical regions. Distribu-tional patterns and tax exporting are likelyto be much different for the business sharethan for the consumers’ share.

If business taxes are to follow the ben-efit principle, the general sales tax is not agood candidate, because it is usually lim-ited to retail sales. Furthermore, in 1992,“states in every Census region appear tohave taxed business in excess of directbusiness service expenditures” (Oaklandand Testa, 1996). By most counts, then, fur-ther reducing the business share of thesales tax makes sense, and in recent de-cades, several states have done so. “In1971, 22 states applied the full tax [to in-dustrial machinery]; in 1983, 12 states; in1994, only 6 do” (Due and Mikesell, 1994).If policymakers become more consciousof the sales tax as a business tax, they maytake more steps in this direction. On the

9 Footnote 7 contains an explanation of these terms; Table 2 shows which states use each test.


88

other hand, they may find such changequite difficult, given current pressures onstate and local tax sources, the politicalexpediency of a “hidden” tax (and pro-ducers’ share is probably even more hid-den than consumers’ share), and “the verysubstantial amount of revenue that can beobtained by including at least some pro-duction inputs” (Due and Mikesell, 1994).

Acknowledgments

The author thanks Carolyn Voller forprogramming, data management, andother research assistance, and RandallWaldron and John Powell for valuable com-ments. Three referees and two editors alsoprovided many valuable suggestions. Thisresearch was supported by the Universityof South Dakota General Research Fund.

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Significant Features of Fiscal Federalism, Vol-ume 1. Washington, D.C.: GovernmentPrinting Office, various years.

Clayton-Matthews, Alan.The Massachusetts Dynamic Analysis Model:A Brief Description with Illustrative Examples.Bureau of Analysis, Estimation, and Re-search, Department of Revenue, Common-wealth of Massachusetts, 1993.

Commerce Clearing House, Inc.State Tax Guide. Chicago: Commerce Clear-ing House, Inc.

Derrick, Frederick W., and Charles E. Scott.Maryland’s Sales and Use Tax: Past, Present,and Future. Baltimore: Loyola Institute forBusiness and Economic Research, 1989.

Due, John F., and John L. Mikesell.Sales Taxation: State and Local Structure andAdministration. 2nd ed. Washington, D.C.:Urban Institute Press, 1994.

Federation of Tax Administrators. 1990 Survey of the States: Sales Taxation of Ser-vices. Washington, D.C.: Federation of TaxAdministrators, 1990.

Fisher, Ronald C.State and Local Public Finance. 2nd ed. Chi-cago: Irwin, 1996.

Graeser, Laird.Sales Taxation of Services: A Taxonomy andRanking of the States. Washington, D.C.: Fed-eration of Tax Administrators, 1990.

Graeser, Laird, and Allen Maury.“Sales Tax on Services.” In Sales Taxation:Critical Issues in Policy and Administration,edited by William F. Fox. Westport: PraegerPublishers, 1992.

Joulfaian, David, and James Mackie. “Sales Taxes, Investment, and the Tax Re-form Act of 1986.” National Tax Journal 45No. 1 (March, 1992): 89–105.

Mikesell, John L.“Sales Tax Coverage for Services—Policy fora Changing Economy.” Journal of State Taxa-tion 9 (Spring, 1991): 31–50.

Mikesell, John L.“Fiscal Effects of Differences in Sales TaxCoverage: Revenue Elasticity, Stability, andReliance.” In Proceedings of the Eighty-FourthAnnual Conference on Taxation. Columbus:National Tax Association–Tax Institute ofAmerica, 1992.

Minnesota Department of Revenue. Tax Re-search Division.

Minnesota Tax Incidence Study. Minneapo-lis: Minnesota Department of Revenue,1993.

Mississippi State Tax Commission.National Tax Survey: Sales and Use Tax. Jack-son: Mississippi State Tax Commission,1990.

Mutti, John H., and William E. Morgan.“The Exportation of State and Local Taxesin a Multilateral Framework: The Case ofHousehold Type Taxes.” National Tax Jour-nal 36 No. 4 (December, 1983): 459–75.

Oakland, William H., and William A. Testa.“State-Local Business Taxation and theBenefits Principle.” Economic Perspectives(Federal Reserve Bank of Chicago) 20No. 1 (January–February, 1996): 2–19.

Ring, Raymond J., Jr.“The Proportion of Consumers’ and Pro-ducers’ Goods in the General Sales Tax.”


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National Tax Journal 42 No. 2 (June, 1989):167–79.

Santi, Lawrence.“Estimates of the Incidence of the State Salesand Use Tax on Arkansas Households,1989–1995.” Arkansas Business and EconomicReview 27 No. 1 (Spring–Summer, 1994): 10–18.

Texas Comptroller of Public Accounts.“Texas Business Taxes.” Fiscal Notes 88 No.5-6 (May–June, 1988): 1–6.

Tobacco Institute.The Tax Burden on Tobacco: Historical Compi-lation, Volume 27 (1992). Washington, D.C.:Tobacco Institute, 1993.

Uhimchuk, Sarah J.“Estimating State Sales Taxes on BusinessPurchases: Methodology and Validation.”Unpublished M.A. Thesis. Clemson: Clem-son University, 1986.

U.S. Department of Commerce.Quarterly Summary of Federal, State, and LocalTax Revenue, October–December 1989. Wash-ington, D.C.: Government Printing Office,1990.

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APPENDIX A

Reconciling Census and CES Data

For this study, it was necessary to reconcilethe data sources’ differing units of analysis:Census’ household (HH) and CES’s consumerunit (CU). Each family and each person livingalone constitute an HH and a CU; for these liv-ing arrangements, the definitions are compa-rable. However, while the Census treats unre-lated persons occupying a single housing unitas one HH (called a nonfamily household) inall cases, the CES treats them as a single CUonly if they “pool their income to make jointexpenditure decisions.” Persons who share liv-ing quarters but are “financially independent”are separate CUs, but a single nonfamily HH.Consequently, there are more CUs than HHs.Since numbers of CUs in each state are notavailable, they were estimated as follows.

Let CUTOT be all consumer units; CUFI beCUs made up of financially independent per-sons living together; HHTOT be total (familyand nonfamily) households; HHNF benonfamily (single-member and multiple-mem-ber) households; and PERNF be (unrelated)persons living in nonfamily, multiple-memberhouseholds (i.e., excluding persons living aloneor in families). Let the subscript US indicateUnited States totals and the subscript i indi-cate state i. From CUTOTUS (in U.S. Departmentof Labor, 1991, Table 1) and HHTOT and PERNF(provided for the United States and each statein U.S. Department of Commerce, 1993), CUFIUS

can be estimated as

CUFIUS = CUTOTUS – HHTOTUS

and the ratio of the number of financially inde-pendent, unrelated CUs to the number ofunrelated persons living together can be givenby

RATFIUS = CUFIUS/PERNFUS.

Assuming this ratio holds for all states,

CUFIi = RATFIUS × PERNFi.


90

A state’s total nonfamily CU is thus given by

CUNFi = CUFIi + HHNFi.

U.S. Department of Commerce (1993) pro-vides, for each state, numbers of families andnonfamily households in each of several in-come classes. Since families are defined essen-tially the same by Census and the CES, the fam-ily income distribution is used “as-is” for thisstudy. To adjust the nonfamily household(HHNF) distribution (because CUNFi > HHNFi),we assumed the income distribution for CUFIto be the same as the distribution for HHNF.Defining CUFIi,j and HHNFi,j as before, and add-ing subscript j to indicate income classes,

CUNFi,j = HHNFi,j × (CUNFi/HHNFi).

APPENDIX B

Data Sources

Figures for total sales tax collections are fromU.S. Department of Commerce, Quarterly Sum-mary of Federal, State, and Local Tax Revenue(1990). This source gives state revenues bycalendar year, the period used for all other datain this study. Tax rates are based on ACIR(1992, Table 31); U.S. Department of Commerce,State Government Tax Collections: 1989 and 1990(Table 8); and U.S. Department of Commerce,Quarterly Summary of Federal, State, and Local TaxRevenue (various issues).

Tax base definitions are based primarily onthe following.

Food and clothing: ACIR (1990, Table 24);Mikesell (1992, Table 1).

Consumer utilities (electric, gas, water, andtelephone); other consumer services:Mikesell (1992, Table 2); Mikesell (1991,Table 1); Federation of Tax Administrators(1990).

Alcoholic beverages: ACIR (1990, Table 30).Gasoline: ACIR (1992, Table 34); U.S. Depart-

ment of Transportation (1989).Tobacco: Tobacco Institute (1992, Table 15).Services: Mikesell (1991); Graeser (1990).Ingredient/direct use test: ACIR (1990, Table

24, n. 15).Manufacturing utilities: Federation of Tax

Administrators (1990); Mississippi StateTax Commission (1990).

Manufacturing/industrial equipment, farmmachinery: Due and Mikesell (1994);Young and Piper (1990).

Nonprofit organizations: Mikesell (1992).(Footnote 7 contains explanations of the last

four terms.)

We consulted various sources describingstate provisions; where descriptions conflicted,we used whatever other information helpedresolve the conflicts. Commerce ClearingHouse, State Tax Guide, and Young and Piper(1990) helped clarify some difficult points. Callsto state revenue departments were necessaryin a few cases.