State Tax Policy and State Sales Taxes: What Tax Expenditure Budgets Tell Us About

Tax expenditure budgets provide a window into intended tax policy. They sort the mixture that adopted tax laws represent by dividing tax structures into provisions that define how revenue is to be raised (tax policy) and provisions that deliver preferences to certain economic entities (budget policy). A review of individual state sales tax expenditure budgets reveals considerable confusion about the tax policy intent of retail sales taxes for distributing the tax burden, although they do suggest general agreement, at least implicitly, that the tax is intended as a general tax on household consumption. An investigation of the major components of these reports, however, reveals major differences across states, partly because of differing exemption patterns in state laws, partly because of differing state economies, but also partly because of differences in how the states define the normal structure for the tax. While some states identify consumption as the normal base fairly directly, other states have less focus and that shows up particularly in ambiguous treatment of purchases made by businesses and of services omitted from the tax base. Many states would profit from a focused discussion with lawmakers about the ideal revenue intent of their retail sales taxes