Blue Mass Group

I have been very uncomfortable with both of Bob's posts (3 Replies)

The post from last Friday made me especially uncomfortable, but this one does as well. I wasn’t quite sure why at first. Maybe because the tragedy was still unfolding. Maybe because this hit a little too close to home (I’ve worked and lived in Connecticut and my own son is approaching elementary school age at what seems like warp speed – the entire world seems to speed up once you become a parent).

But after reading this post and thinking about it a little, the reason they’re making me uncomfortable is because they show no empathy whatsoever for the specific victims here. Both posts could have been written weeks, months, or years ago with a space for [insert tragedy here]. Both posts are the very definition of politicizing a tragedy. Barely a passing mention of the actual victims with no specifics, but lots of specific political complaints about Scott Brown, the NRA, the Supreme Court, etc. Nothing about the heroic acts of many of the teachers, administrators, and first responders. Or empathy with the victims, the families of the victims, the other students, the entire Newtown community.

I spent last Friday thinking about getting home from work and hugging my son. I thought about the Newtown parents frantically driving to their kid’s school and hoping that their children were OK. I spent most of the weekend thinking about the victims, their families, and the Newtown community. But I just couldn’t get to the point of thinking about greater policy or political implications. I agree with President Obama and Gov. Malloy – that time comes later, the first response to a tragedy should be empathy with the victims and reflection on your own priorities.

A few days have now passed, so I can begin to think about it. I am someone who is very uncomfortable with guns. I’ve never touched a gun. I’ve never seen a gun fired other than in a military style salute at a parade or event. I’m not a part of the gun culture. I read the second amendment as a conditional phrase where the dependent clause is no longer true so the independent clause need no longer be true. And I would unconditionally support measures to ban automatic and semi-automatic weapons and impose stricter measures on who is allowed to purchase guns.

But I’m still uncomfortable at posts that jump straight into politics with barely a passing mention of the victims.

That would make it easier (1 Reply)

But those exemptions vary state to state, and are often seen within the state as important policy decisions to benefit a targeted group (poor people, job creators, etc). And if a federal law was passed saying that remote sellers have to withhold on all sales regardless of whether an exemption applies, then the law would flip the playing field from favoring remote sellers to punishing remote sellers. One of the main goals of the legislation is to level the playing field.

The Streamlined Sales and Use Tax Agreement was an effort to get states to adopt uniform laws. Instead of getting rid of all exemptions, all states would adopt the same exemptions. And the same sourcing rules, and the same definitions, and the same procedures for exemption certificates, etc. The thought was that once states voluntarily adopt the same rules, Congress would allow states to impose sales tax collection obligations on remote sellers. As I mentioned before, some progress has been made. But its been 20 years and the progress often seems to move at a glacial pace.

A classic problem whenever a statute contains a small business exemption (0 Replies)

“You mean that if I make (the $ threshhold) – $1 then I am entitled to X (small business loan, tax credits, exemption from a regulatory burden) but when I make one extra dollar then I am no longer entitled!” It goes with the territory of having a small business exemption. And nexus is either all or nothing, its hard to phase in at different levels. You can’t have a little nexus, like you can’t be a little bit pregnant.

But I would agree that $1 million in total sales is a low threshold for determining when a business is no longer a “small business.” I seem to remember previous versions setting that amount at $5 million, which seems more reasonable to me.

He's referred to use taxes that the business owes (0 Replies)

When a business makes purchases that the business will consume, the business owes use tax (if sales tax was not already collected). As you correctly point out, there are exemptions for items that will be resold or items that become an ingredient or component of an item to be sold (and there are dozens, if not hundreds of additional exemptions). But at least some of the items that a business purchases will be consumed by the business and will not fall within an exemption. And as I stated previously, businesses are pretty good at self-assessing use tax. (Maybe not the correct amount, but at least an attempt at compliance). As roarkarchitect point out, one of the reasons that they are better at complying is because there is a decent chance that they will be caught and penalized if they don’t comply. The same is not true for individuals.

You can't just mail a check (1 Reply)

In most jurisdictions you have to register with the tax administration agency, you have to get a sales tax permit, and you have to pay an appliaction fee. Then you have to determine how often you need to remit the tax you collect (monthly, quarterly, annually, etc). And once registered, you have to file a return each month – even if you have no sales you will file a 0 return.

This whole thread has gotten ridiculous. Some are complaining about the perceived burden on small business, but every version of the proposal that I’ve seen exempts small business (however defined). Others are severely underestimating the actual compliance and administrative burdens – I assure you that they are real.

The use tax compliance rate is very low (2 Replies)

The last reliable data I could find is a few years old, but the percentage of indivduals who comply with their use tax obligation was in the single digits in all 50 states and in most cases in the low single digits. Businesses are actually pretty good about paying their use tax, but individuals are terrible.

Part of it is ignorance/poor education. Many people still think that shopping in NH is “tax free” and that they do not owe use tax on their internet purchases. Another part of the problem is the low probability of getting caught for not complying. The state is not going to conduct a use tax audit on an individual (unless the individual purchases a boat, a plane, expensive art work, or some other big ticket). Its just not worth the states’ time to audit an individual who spends a few hundred dollars per year buying stuff online to make an assessment of $25.

Applying the same principle would mean (1 Reply)

taxing 100% of the odometer increase for MA residents, then giving the MA resident a credit for transportation taxes imposed by other states. It raises a whole series of questions – Credit for just VMT in other states? What about Gas taxes? Tolls? Any other taxes? Who administers the tax? How does the MA resident show how much tax is paid to another state?

I guess it could be as simple as saving your EZ Pass statements and your gas receipts from out-of-state travel and using them to reduce your MA VMT. But that system, while avoiding the “big brother” objections, would lose the ability to impose different rates based on time and/or geographic location of travel.

I started my last reply before you posted this comment (0 Replies)

And I think you make a good point. Its certainly not a plain reading of Art 44 to prevent a progressive income tax on income in exchange for services. But looking at a federal form 1040, most of the federal items of income (even many that are ordinary income) are at least arguably “derived from property” – interest, dividends, capital gains, business income, IRA distributions, pensions, annuities, rent, royalties, flow-throughs, farm income, and social security benefits. Maybe MA could have a progressive tax on wages, alimony, and unemployment income?

Interesting (1 Reply)

Keep in mind that Peterson dealt with the situation where the General Court tried to increase the tax rate on capital gains in the middle of the year. All gains from January 1, 2002 through May 2, 2002 would be taxed at one rate, and all gains from May 2, 2002 through December 31, 2002 would be taxed at another. The Supreme Court concluded that the word “income” necessarily incorporates an element of time (i.e. a tax period). The legislature cannot apply different rates to the same income received in the same tax period.

I wonder whether the legislature could have simply started a new tax period on May 2, 2002 and applied a different rate. The tax period for personal income tax has always been 1 year. But there are many tax types where the tax period is quarterly, monthly, etc. (i.e. sales and use tax, withholding tax, etc.). Of course the administration of the tax would have been a nightmare, requiring 2 different MA returns for the same federal income year. But it would probably be legally possible.

But to your larger point, I don’t know if I agree with your conclusions based on Justice Cordy’s research. I think Justice Cordy’s reference to “a greater flexibility to structure a system of taxation” should be understood in the context of the SJC Opinions from 1908, 1911, and 1915 finding that the MA constitutional was extremely restrictive when it came to imposing state level taxes. As you say, they “dramatically expanded” the taxes that the MA legislature can impose. But in that deamatic expansion, they specifically considered and rejected the possibility of a progressive income tax in favor of a flat uniform rate (at least according to J. Cordy’s reading of 1914 Senate J. 1613-1614).

There is no further discussion of why a progressive income tax was rejected. I find your theory that the “uniform rate” language was designed to prevent tax avoidance within MA interesting. But do you really think that the drafters of the amendment were concerned that the state level tax would be imposed on the same class of income based on geography? The very concept of a state level tax would eliminate the type of geographic tax structuring that occurred before the amendment. Is it possible that the drafters were actually concerned about a regressive tax? About a “class warfare” progressive tax? Maybe. But it all needs to be considered in context.

The starting point for the Massachusetts personal income tax (1 Reply)

is federal gross income (line 11 of your federal Form 1040). You are confusing gross income (line 11) with AGI (line 37). Many other states use gross income as a starting point – Alabama, Arkansas, DC, Mississippi, New Jersey, and Pennsylvania. Romney is clearly not proposing any changes to the calculation of federal gross income, so there would be no revenue change in the above states.

The vast majority of states use AGI (line 37) as a starting point. Those states could see an increase in tax revenue only if “above the line” deductions (lines 23-35 on the federal Form 1040) will be limited under Romney’s plan. From everything I’ve heard, I think Romney is talking about limiting itemized deductions. So I don’t think any of those states will see a change.

The only states that use federal taxable income as a starting point are Colorado, Minnesota, North Dakota, South Carolina, and Vermont. Those states could see an increase in state personal income tax revenues, but it would be limited. Romney has proposed a cap on the total amount of itemized deductions (I think he has used $25,000 as an example in debates) so the cap would only matter to people with a high level of deductions. In addition, Colorado (4.63%) and North Dakota (3.99%) both have low personal income tax rates. But for high earning individuals with significant itemized deductions living in Minnesota (7.85%), South Carolina (7%), and Vermont (8.95%) could see a significant increase in their state income taxes.