NCPA - National Center for Policy Analysis

Avoiding Sales Taxes is Common Practice

June 5, 2002

The dismissal this week of the head of Tyco International for avoiding New York state sales taxes on art purchases has focused attention on such practices. Experts report sales-tax avoidance is so common as to be deemed a national pastime.

  • By 2003, uncollected sales and use taxes will exceed $20 billion, according to a University of Tennessee study -- with Michigan alone missing out on $239 million this fiscal year.
  • The nation's bizarre network of 7,800 tax jurisdictions -- with rates ranging from zero in five different states to 11 percent in the city of Arab, Ala. -- simply invites abuse, critics argue.
  • While some consumers have only to cross state borders to avoid state taxes on their purchases, those who shop by catalogue or online from another state have an advantage since merchants generally don't add in taxes -- even though purchasers are legally required in most states to report and pay the taxes.
  • While some states are attempting to crack down on evaders, tax specialists say most of them need not fear being caught -- particularly if their orders are for relatively small dollar amounts.

Some forms of state sales-tax avoidance are essentially legal. Under two Supreme Court decisions, states lack the legal power to collect levies on many bona fide interstate transactions.

Source: Glenn R. Simpson, Jeff D. Opdyke and Ann Zimmerman, "Sales-Tax Indictment Targets Common Practice," Wall Street Journal, June 5, 2002.


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