Senate Minority Leader Mitch McConnell of Ky. gestures as he speaks at the 40th annual Conservative Political Action Conference in National Harbor, Md., Friday, March 15, 2013. (AP Photo/Manuel Balce Ceneta) ORG XMIT: MIN2013040917370090 ORG XMIT: MIN1304091743400079
Are there really 10,000 tax codes?
- April 29, 2013 - 10:36 PM
The bill: During last week’s debate over a bill that supporters call the Marketplace Fairness Act — which appears headed for Senate passage in May with bipartisan support — a colleague spotted this “nearly 10,000” figure and wondered about its accuracy. It certainly seems like a large number.
The proposed bill would require online sellers with annual revenues of about $1 million to collect the relevant sales taxes that would have been due if the buyers had purchased the items in their home states. Currently, no sales tax is expected to be collected if the seller does not have a physical presence in the state, such as a warehouse. Instead, buyers are supposed to pay such sales taxes when they file their income taxes, but compliance is poor, so states claim they are losing billions of dollars in unpaid state taxes.
The figures: McConnell’s office said he got the figure from a report by the Washington-based Tax Foundation, which said that “several private firms maintain databases of the sales tax rates in the 9,600 local jurisdictions in the United States that levy them.”
Joseph Henchman, vice president of legal and state projects at the Tax Foundation, said the actual figure is 9,646, as of July 2011. He said that Vertex Inc., a sales tax software provider headquartered in Berwyn, Pa., calculated the figure at the Tax Foundation’s request.
The Vertex estimate is in the mainstream for such estimates. Avalara, another software specialist, gives an estimate of 14,500. CCH, a Riverwoods, Ill., business that serves the tax, accounting and audit markets, calculates it as 7,600.
Diane Yetter, founder of the Chicago-based Sales Tax Institute, said the numbers vary so much because of differences in the sophistication of the software. For instance, she said, Denver has several special-purpose tax districts, such as for the stadium or the convention center. Some software companies count each district as a separate tax jurisdiction and others lump together all of the districts as one entity.
The numbers add up quickly because all but five states have sales taxes, and these then can be layered with county, city and/or district sales taxes. In 2012, Vertex says, 259 tax jurisdictions either increased or decreased their rates, while 167 new tax districts were created.
“The number is not easily verifiable,” she said, noting the wide ranges of estimates. “But 9,600 is probably a good average.”
Whether the crazy-quilt of tax jurisdictions is “a burden” is open to interpretation. David French, senior vice president of government relations at the National Retail Federation, which is pushing hard for the new law, said that “it is true that there are roughly 9,600 taxing jurisdictions, but the Marketplace Fairness Act contains several provisions to simplify compliance for remote sellers.”
Read it for yourself: The Congressional Research Service produced an interesting report that lays out some of the issues for readers who want to know more. It is viewable at www.startribune.com/a2215.
Does it stand up? yes. McConnell’s figure stands up to scrutiny, falling right in the center of the various estimates of tax jurisdictions in the United States. It may be debatable whether the figure is especially relevant, especially if the bill would indeed simplify the filing of state taxes, but McConnell earns a prized checkmark as “the truth, the whole truth, and nothing but the truth.”
© 2014 Star Tribune