In a special report at taxfoundation.org it has been determined that “Tax Freedom Day will arrive on April 12 this year, the 102nd day of 2011.” According to wikipedia, Tax Freedom Day is “the first day of the year in which a nation as a whole has theoretically earned enough income to fund its annual tax burden.”
This fictional day indicates that “Americans will need to work 102 days — more than three months — just to earn enough to pay ther tax bill,” according to a piece released by ktul.com. Author Mark Bradshaw continues, “Each state has a different date due to incomes as well as higher or lower state and local taxes. Oklahoma’s Tax Freedom Day this year is April 2…That’s a full month before Connecticut, a week after Mississippi.”
Though the American focus is on income taxes this time of year, legislatures in many states are determining changes to state sales taxes; and local jurisidictions are likewise considering ways to garner income to support programs while aid from state and federal government entities are fast disappearing.
In a recent blog on The Economist (Businessweek.com), a comparison chart displays the average percent of (income and sales tax) taxation burden by country around the world. Surprisingly, the US ranks below most of the countries in the world for sales tax rates. Buttonwood says, “Our many American readers will want to know the exact split of its government revenue base. The answer is 40.9% comes from income [taxes], profits and capital gains; 26.9% from social security [taxes]; 13.6% from property [taxes]; and 18.5% from goods and services [sales taxes]. In Britain, the equivalent propertions are 38.4%, 19.7%, 12.3% and 29%.”
In an earlier post he notes “If America wanted to close its deficit, this [sales tax] is the obvious place to start.” With no federal sales tax, the US model is to allow states control over sales tax choices. The current environment is volatile as states and businesses argue and discuss sales tax law. As the changes are dynamic, and audits are on the rise to ensure compliance with sales tax laws, rules and regulations, the burdens on businesses increase to keep up with the changes.
Businesses must ensure compliance by applying the correct sales tax rates for each transaction, delivering clear reports to indicate that compliance and reconciling filing information with actual collection, and then making payment in a timely manner–while monitoring the due date for one or more jurisdictions if they don’t allow the state to administer for them. In addition, they have to keep up with the most current tax rules and regulations as well as the rates for each jurisdiction in which they collect and remit sales taxes.
These challenges may seem small in the scheme of things with governments discussing ways to increase revenue and reduce spending, including foreign aid in the face of many conflicts and disasters, but in the US, a business is an important entity in our society–they provide jobs and tax income plus many give voluntarily to their community. Added burdens and increases in costs can cause disastrous results.
2011 looks to show us an interesting business landscape for sales and use taxes, the easiest tax to impose and modify (and one we never reach “Tax Freedom Day” during the year)–a landscape that will be critical to governments and businesses as well as the individuals and businesses who have to pay them at the till and when reporting to the government.
About the Author: Susan McLain has over 15 years experience in technical and marketing writing, graphic design, business development and marketing management. She currently works for Avalara, Inc., a Software-as-a-Service (SaaS) company providing automated solutions for sales and use tax compliance for small to medium businesses.