All but five states impose sales taxes, which in fiscal year 2016 raised over $363 billion in tax revenue for the states (and their localities). This figure represents a sizeable 22% of the states’ total tax collections.

Just recently, the Council on State Taxation (COST) published its first evaluation of state statutes and rules that govern state and local tax depart­ments’ administration of their sales taxes. In the analysis, Indiana tied with a couple of its neighbors, Michigan and Ohio, for the best grade of any states: A- (no state received an A). The COST scorecard applied a number of tests and questions within the following categories:

  • Extent of taxation of business inputs or pyramid­ing of sales taxes
  • Fair sales tax administrative practices
  • Uniformity of state and local sales tax bases and centralized administration
  • Simplification and transparency of the sales tax
  • Reasonable tax payment and credits administra­tion
  • Fair audit and refund procedures

COST also looked at “other issues” if they reflected poorly on the sales tax administration. The group’s full report can be found here. The report includes a breakdown for each state. The details for Indiana are included in this chart.

The goal of this scorecard is similar to others issued by COST: to improve tax administrative systems and therefore ultimately increase compliance. It is its experience that tax­payers are more willing to comply with a tax system they perceive to be balanced, fair and effective. Sales tax administrative systems that violate basic prin­ciples of fairness and efficiency make compliance for sellers and purchasers more difficult and hinder states’ efforts to modernize their sales tax bases.

Resource: Bill Waltz at (317) 264-6887 or email: [email protected]