- Report Published -
|Replacing Income Tax Revenues With Sales and Use Tax Revenues|
|Joint Legislative Audit and Review Commission|
|HJR 172 (Regular Session, 2004)|
|The report also assesses the probable impacts to Virginia of replacing personal income tax revenues with additional sales and use tax revenues.|
There are nine states that do not levy a broad-based personal income tax. Based on the review of these nine states, several observations may be made. One observation is that several of the states have unique characteristics, such as mineral reserves or a large tourism industry, that enable them to raise revenues without the need for a personal income tax. Other key observations from this report are that most of these states have regressive tax structures, and the states that rely most heavily on sales and use tax revenues also appear to be the most vulnerable to loss of revenues through Internet and out-of-state sales.
In addition to presenting data and information on tax structures of other states, this report also assesses the impacts to Virginia of replacing personal income tax revenues with sales and use tax revenues. This assessment found that it would be impractical to replace all personal income tax revenues with sales and use tax revenues alone. If the sales and use tax base were left unchanged, the sales tax rate required to replace 100 percent of personal income tax revenues would be 12.3 percent, which is significantly higher than the current top state sales tax rate of 7.0 percent. However, the report also found that approximately 82.5 percent of the personal income tax revenue could be replaced by raising the sales tax rate to 7.0 percent while expanding the sales tax base to include most services.
If Virginia were to replace personal income tax revenues with sales and use tax revenues, the State and local tax structure would become more regressive. Currently, State and local taxes are distributed fairly proportionally across income groups in Virginia. The primary reason for Virginia’s proportional distribution of taxes is the State’s reliance on the personal income tax, which is progressive and offsets the regressive nature of the sales and use, excise, and property taxes.