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Saturday, May 15, 2010

Tax Oddity - Complicated Washington Sales Tax Exemption

I previously wrote about Washington expanding its sales tax to cover candy and bottled water. While exemptions might serve a public policy purpose, they tend to make the law more complicated because the exemption must be carefully defined. For example, what is the difference between candy and non-taxable food. In the prior post, I include the Washington definition of "candy." One thing that makes something not be candy is having flour. So, a Kit-Kat bar is not candy!

The oddity of these exemptions is that lawmakers don't realize the amount of time and frustration that accompanies them. The Seattle Times reported that the drafter of a table listing all types of things people might think are candy and whether the particular product is taxable or not, spent two months on it ("Candy man's job can be taxing" by Nicole Brodeur). The table is amazing - you should spend a few minutes scrolling through the numerous tables on different types and manufacturers of these food items.

A better approach is to either tax or exempt an entire category rather than subsets. For example, tax all food or exempt all of it. Or if you want to start taxing some of the exempt item, select a category that is easier to identify and define, such as canned items or liquids (although the rationale for doing so might not otherwise make sense). Washington could have just taxed all food along with lowering the overall rate (due to the base broadening) and adding a refundable income tax credit for low income taxpayers.

What do you think?

3 comments:

jaybee said...
This comment has been removed by a blog administrator.
jcporter said...

pantavIf men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place, oblige it to control itself.

James Madison, Federalist No. 51, February 8, 1788

jcporter said...

If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place, oblige it to control itself.

James Madison, Federalist No. 51, February 8, 1788