Minnesota Consumption Tax Model and Sales Tax Gap

Transcription

1 Minnesota Consumption Tax Model and Sales Tax Gap Federation of Tax Administrators Revenue Estimating and Tax Research Conference September 15, 2008 Portland, Maine By Rod Hoheisel Minnesota Department of Revenue Minnesota Sales and Use Tax Gap Report Updates Previous Study New Study Contract for work and updated model. DOR had working role for part of the study. Base year estimates for 2004, projections to

2 Basic Questions Addressed in the Report What is the estimated amount of sales and use tax gap? How rapidly will the tax gap grow? How much of the tax gap results from underpayment by current filers compared to non-filers? What industries are most likely to underpay tax? How does underpayment of use tax compare to underpayment of sales tax? How much of the unpaid total is attributable to remote sales? 3 Department of Revenue Role Goal was to make it possible for Tax Research/DOR to produce future updates. DOR prepared: 1) taxpayer transaction files, 2) audit data files (used for imputations to unaudited taxpayers by industry). 4 2

3 Gap Estimates are Based on Consumption Tax Model Consumption Tax Model provides estimates of sales and use tax collections under full compliance scenario. Full compliance actual pre-audit collections = tax gap 5 Consumption Tax Model Calculations Based on I-O and other U.S. data (scaled to MN) that detail purchases by industry/commodity. Estimates portion of these purchases assumed to be taxable. Includes estimates of sales and use tax payments for: 1) consumers on their purchases, 2) businesses on intermediate good purchases, and 3) businesses on capital purchases. 6 3

4 Consumption Tax Model Improvements More current BEA information is now available, e.g., Annual I-O Data. More categories of personal consumption expenditures (PCE) are available. State estimates of PCE amounts are more precise by using Census of Retail Trade and Services MN/US ratios. 7 Chart 1 Taxpayer Files and Consumption Tax Model Steps (iii) Difference of (i) (ii) Source (i) Consumption Tax Model: Estimate of All Transactions Subject to Tax (ii) Sales and Use Tax Return Transaction Files (iv) Audit Data Imputed to All Filers by Industry to Estimate Underpayments Measure Full Compliance Estimate Actual Pre-Audit Total Sales and Use Tax Gap Filer Sales and Use Tax Gap (v) Difference of (iii) (iv) Non-Filer Tax Gap 8 4

5 Chart 2 Estimated Sales and Use Tax Gap by Year ($ Millions) Calendar Year Potential $4,776 5,016 5,154 5,254 5,433 5,653 5,875 6,088 Actual Pre-Audit $4,256 4,465 4,582 4,659 4,810 5,004 5,186 5,371 Gap* $ *Does not include the sales tax on motor vehicles. Gap as Percent of Actual 12.2% 12.3% 12.5% 12.8% 12.9% 13.0% 13.3% 13.4% 9 $7,000 Chart 3 Total Gap Estimates - Calendar Years $6,000 $5, $4,000 Millions $3,000 $2,000 4,256 4,465 4,582 4,659 4,810 5,004 5,186 5,371 $1,000 $ Calendar Year Actual Tax Gap 10 5

6 Chart 4 Total Tax Gap as Percent of Actual Calendar Years % 12% 12.2% 12.3% 12.5% 12.8% 12.9% 13.0% 13.3% 13.4% 10% 8% 6% 4% 2% 0% Calendar Year 11 Filer Gap Use Tax Sales Tax Total Non-Filer Gap Total Gap Chart 5 Filer and Non-Filer Gap in 2004 Portion of Gap Dollars (Millions) $ $371 $149 $520 Percent of Actual 68.9% 4.3% 8.7% n/a 12.2% 12 6

7 Chart 6 Sales and Use Tax Gap (2004) ($ Millions) $149 29% $171 33% Non-Filers' Sales & Use Tax Filers' Sales Tax Filers' Use Tax $200 38% 13 Chart 7 Filer Gap by Industry in 2004 ($ Millions) Retail Trade Information Manufacturing Wholesale Trade Utilities Other Services Unclassified and de minimus* Construction Mining Health & Social Industry Accommodation & Food Services Real Estate & Leasing Adm. & Waste Management Arts, Entertainment, & Recreation Prof. & Tech. Serv ices Finance & Insurance Transp. & Warehousing Totals NAIC Ranges & Unclassified $1,755.1 $4,256.0 $371.1 *Businesses w ithout industry classification represent the vast majority of these dollars. De minimus industries include: Forestry, Fishing, Hunting, and Agriculture Support; Management of Companies and Enterprises; and Educational Services Filer Gap $

8 $2,000 $1, Chart 8 Filer Gap by Industry (2004) $1,600 $1,400 $1,200 Numbers above columns show filer gap. Millions $1,000 $800 $ $ $200 $ Retail Trade Accom. & Food Services Information Manufacturing Wholesale Trade Utilities Real Est. & Leasing Other Services Unclass./de minimus* Adm. & Waste Mgmt. Actual Arts, Entert., Recr. Prof. & Tech. Services Filer Gap Construction Finance & Insurance Transp.& Warehousing *Businesses w ithout industry classification represent the vast majority of these dollars. De minimus industries include: Forestry, Fishing, Hunting, and Agriculture Support; Management of Companies and Enterprises; and Educational Services. Mining Health & Social 15 Chart 9 Filer Gap as Percent of by Industry ($ Millions) ALL FILERS Utilities Mining Manufacturing Information Retail Trade Wholesale Trade Other Services Category Arts, Entertainment, & Recreation Finance & Insurance Real Estate & Leasing Accommodation & Food Services Transportation & Warehousing Administration & Waste Management Construction Professional & Technical Services Health & Social Unclassified & De minimus* $4, , Gap as Percent of 8.7% 0.2% 0.7% 4.2% 4.4% 6.5% 6.7% 6.8% 7.1% 8.3% 10.1% 17.3% 18.1% 21.4% 22.1% 26.8% 26.9% 38.9% *Businesses w ithout industry classification represent the vast majority of these dollars. De minimus industries include: Forestry, Fishing, Hunting, and Agriculture Support; Management of Companies and Enterprises; and Educational Services. 16 8

9 30% Chart 10 Filer Gap as Percent of Actual (2004) 26.8% 26.9% 25% 22.1% 21.4% 20% 18.1% 17.3% 15% 10% 5% Ave = 8.7% 6.5% 6.7% 6.8% 7.1% 4.2% 4.4% 10.1% 8.3% 0.2% 0.7% 0% Utilities Mining Manufacturing Arts, Entert., Recr. Information Retail Trade Wholesale Trade Finance & Insurance Real Est. & Leasing Accom. & Food Services Transp.& Warehousing Adm. & Waste Mgmt. Other Services Construction Prof. & Tech. Services Health & Social 17 Growing Importance of Remote Sales B2B Electronic Sales for % of Manufacturer sales. 18.3% of Wholesaler sales. B2C Electronic Retail Sales 3.1% of All Retail Sales (2nd Quarter, 2008) Rapid growth in recent years. 18 9

10 Chart 11 Estimated Quarterly U.S. Retail E-Commerce Sales as a Percent of Total Quarterly Retail Sales: 4th Quarter rd Quarter 2008 Percent of Total 19 Mail Order (Catalog) Sales Adds 2.5% to 3.1% electronic retail sales. Remote retail sales (e-commerce plus mail order) are 5.6% of total retail sales. Electronic Sales - Services 1.6% of selected services* sales Most are B2C *Including travel arrangement and reservation services, information services, and financial services

11 Estimated Total Remote Sales and Use Tax Gap Step 1: Retail Remote Sales Tax Gap Retail E-Commerce Mail Order Sales E-Commerce Sales of Services Includes Adjustments for: from NAICS 4541, electronic shopping and mail order houses. (Retail) Minnesota s de minimus use tax exemption for individuals. (Less than $50 tax per year.) 21 $350 Chart 12 Step 1: Remote Retail Sales Tax Gap (With De Minimus Adjustment) $300 Tax liabililty (ignoring individual de minimus) Unpaid liability (ignoring individual de minimus) 297 $250 Tax gap (with de minimus adjustment) Millions $200 $150 $100 $ Gap growth rate averages 11% per year to $ Calendar Year 22 11

12 30% 25% Chart 13 Step 1: Remote Retail Sales Gap as Percent of Total Gap Calendar Years % 23.4% 24.3% 25.8% 26.9% 28.4% 20% 19.4% 20.1% 15% 10% 5% 0% Calendar Year 23 Estimated Total Remote Sales and Use Tax Gap (cont.) Step 2: Calculated Share of Filer Use Tax Gap Due to Remote Sales Includes remote purchases by businesses directly from manufacturers and wholesalers. Estimated 80% of Filer Use Tax Gap. Step 3: Other Adjustments E.g., eliminate overlap for portion of retail remote purchased by businesses

13 Millions $800 $700 $600 $500 $400 $300 Chart 14 Growing Importance of Remote Sales Tax Gap Calendar Years Total remote sales tax gap increases by more than 50%, from $256 to $394 million. Retail E-commerce gap almost triples, while catalog sales rises by less than 20% and the wholesale remote and rest of the gap by 22% -- each less than the growth rate for actual collections (26%) $200 $ $ Calendar Year Rest of Gap Wholesale Remote Sales Gap Retail Catalog Gap Retail E-Commerce Gap 25 Chart 15 Tax Gap as Percent of Actual, by Type of Sale Calendar Years % 12% 10% 1.3% 1.4% 1.7% 1.9% 2.1% 2.3% 2.5% 2.8% 1.1% 1.0% 1.1% 1.1% 1.1% 1.0% 1.0% 1.0% 8% 3.6% 3.6% 3.6% 3.6% 3.6% 3.6% 3.6% 3.5% 6% 4% 6.2% 6.2% 6.1% 6.2% 6.2% 6.1% 6.1% 6.0% 2% 0% Calendar Year Rest of Gap Wholesale Remote Sales Gap Retail Catalog Gap Retail E-Commerce Gap 26 13