Posted on 06/10/2004 5:47:27 AM PDT by Know your rights
SPRINGFIELD [IL] - A sales tax on junk food and certain soft drinks may be back in play as Gov. Rod Blagojevich and legislative leaders try to reach a budget compromise.
A two-hour meeting in Blagojevich's office Wednesday produced progress, leaders said, including on the contentious issue of revenue increases needed to balance the budget.
Among the ideas under consideration is extending the state sales tax to so-called junk food and to beverages such as fruit drinks and bottled iced tea that are not currently taxed. The idea could bring in as much as $100 million for the state.
"It is in play," said Senate Republican Leader Frank Watson, R-Greenville. "We're not necessarily advocating it, but it is an issue we will discuss."
"It is certainly on the table," said House Republican Leader Tom Cross, R-Oswego. "No one has said yes. The governor said he has some concerns about it. I think it's one of those (options) with a question mark."
The junk food tax is one of a number of revenue options the four leaders are supposed to discuss with their caucus members during the next few days. Depending on the reaction of rank-and-file members, those revenues could be part of a budget compromise or could be rejected.
Wednesday's negotiating session was the first since Blagojevich blasted a legal opinion issued by Attorney General Lisa Madigan as politically motivated. Madigan said last week that a plan to mortgage the Thompson Center in Chicago amounted to issuing state debt and needed a super-majority vote in the General Assembly to proceed. The decision wiped out a $210 million source of income. Blagojevich said the attorney general was simply doing the bidding of her father, House Speaker Michael Madigan, D-Chicago.
If the speaker was upset about Blagojevich's comments, it didn't carry over to the meeting, Cross said.
"I didn't detect any tension today," Cross said. "There was no tension on that issue at all."
Madigan normally refuses to talk to reporters after these sessions, but he said Wednesday that "we made some progress today."
"I will continue to say what I've been saying all along: that the problem here is that the governor has been borrowing and spending money that the state just does not have to spend," Madigan said. "We should work to stop that."
Cross said the leaders eliminated from discussion a number of the business tax increases Blagojevich has sought, including a tax on computer software purchased by business and changing depreciation rules.
"I think a good number of those were ruled out," Cross said.
Despite reports of progress, there is still a long way to go until a budget agreement is reached. Negotiators still haven't gotten into spending details, including how much of an increase should go for education or Medicaid spending. There isn't even agreement on whether to start with the current budget and add money to programs or to start with Blagojevich's budget plan and make cuts. Blagojevich's budget called for nearly $900 million in spending increases.
However, Watson said there is agreement not to spend as much as Blagojevich initially requested.
"We don't have the income coming in to go to the governor's (spending) level," Watson said.
Lawmakers missed the May 31 deadline set by the state constitution to pass a new budget. Rank-and-file members were sent home while selected budget negotiators continued to work. Because legislators missed the deadline, Republican votes are now necessary to pass a new state budget.
Although state government has enough money in the current budget to keep operating until June 30, if a new one isn't approved by then, it will run out of money.
No, the book producer is not an end-use consumer. Buying the rights to stories is a normal expenditure in his business.
The book producer prints books. Are the sale of the books taxable ?
Yes, the books are consumer products. (Exception: books purchased for a business purpose, such a technical manuals, training, etc., are not end-use and not subject to tax.)
The book producer sells the rights to a movie maker. Are the sales of the movie rights taxable ?
No, the movie maker is not an end-use consumer. Buying the movie rights to stories is a normal expenditure in his business.
The movie maker decides to make a movie and leases it to theaters. Are the leases taxable ?
No, the theater is not an end-use consumer. Leasing the rights to show a film is a normal expenditure in its business.
The movie theater sells to customers, are the sales to customers taxable ?
Yes. A movie ticket is a taxable consumer good/service. (Same exceptions as before, though a business purpose for viewing a theatrical release seems to be unlikely.)
The movie producer decides to make a DVD. The DVD's are sold to video stores. Are the sales to the stores taxable ?
No, the video store is not an end-use consumer. Buying videos is a normal expenditure in its business.
The video store rents the same videos to customers and average of 30 times. Is each rental taxable ?
Yes, the rental to a customer is a retail service.
The video store then sells the video to a customer. Is that sale taxable ?
I'm not 100% sure on this, but I believe the answer is yes. The DVD itself has never been taxed, the rentals were taxed on the service provided by the store, not the DVD itself. I base this on similar questions involving real estate.
The movie maker that has the rights sells the product endorsement rights to McDonalds. Is that sale taxable ?
No. Promotional activities are a normal part of McDonald's business, and McDonald's is not an end-use consumer.
McDonalds sells action figures based on the movie to familes. Is that sale taxable ?
Yes. The action figure is a good purchased by an end-use consumer.
All in all I produced one work of literature that has been transformed into many different products and sold in many different forms. According to your idea the tax is only leveled one time. Please explain to me how it applies to the above.
As you point out, your work was transformed into many different products. Your work was never taxed at all. If you were a carpenter and bought a hammer (untaxed, by the way), would you consider the tax on every deck you build to be a tax on the hammer? The only things that were taxed were things other people made using your work. The physical books. The service of providing a theater showing. The service of renting a DVD. The DVD. The action figures.
While the payment of rights to you is a cost of creating those products, none of them are ever taxed except at the end-use points. You were never taxed, which would have increased your costs and inflating the price you charged the book publisher. The publisher was never taxed, which would have increased his costs and inflating the price of the books. And so on.
There are no cascading taxes. The only time an item is taxed is when it is purchased at the retail level by an end-use consumer. If I buy a book, I pay the tax on it. If I decide to resell it, the tax has already been paid, so it need not be paid again.
One creation yielded three separate taxes. If that isn't cascading what is ?
No, it didn't. It was something used by three different creations. I take you back to the hammer analogy -- if a hammer is used to build three decks, each of which is taxed, is the hammer being taxed three times? No, of course not, it is the deck being taxed, not the hammer. The intellectual property of the book you wrote is a tool, like a hammer, that is used to create goods and services that people actually buy.
They're not cascading because items that are taxed are not built using other taxed items. The book is taxed at retail sale, but the selling of the book to the store and the selling of rights to the publisher aren't. There is no hidden, embeded, or cascading tax when someone buys the book. Ditto for the film, DVD, or other merchandise. Do the taxes on the book affect what someone pays for the DVD? No, they don't -- this is why the taxes do not cascade.
Cascading is what occurs under an income tax or a VAT. Under the income tax, when I buy a book, I pay for it with money that was taxed when I earn it. Embedded into the price of the book is the tax the bookseller pays on his profits (his profit margin includes a premium so that he gets an acceptable after-tax return on his investment). Also embedded are payroll taxes on the bookstore's employees, income and payroll taxes for the publisher and any comapines involved with the typesetting, printing, binding, shipping, promoting, etc., of the book (don't forget to include the manufacturers of the raw supplies of ink, paper, glue, etc.). Finally, the taxes you, the author, pay on the income you receive from selling the rights the the publisher affects the eventual price in the same manner. That's a cascading tax.
One of my favorite quotes. Everret Dirkson.
You're missing the point. If you make four separte purchases, you're paying the tax on four different items. If, for example, you only buy the DVD, you are completely unaffected by any taxes from the book/ticket sales and DVD rentals. Because the taxes do not affect each other at all, it not any of the upstream componetns of the final product (many of which are shared, including the work of your authorship) that are taxed, but only the final products sold.
And soda pop tax?
That reminds me, what about hypoglycemics? And folks who are under weight? Are they all going to get tax wavers or will the sick be paying a tax on their life support?
If their were zero tax on anything, the authors income would be much higher. His income is based on a function of the total economic bottom line. He is in essense being charged the full tax on every individual sale and because there are multiple sales its taxed multiple times.
I have some questions about the paper in our book. The lumber company purchases trees and harvests them for its use to produce products and uses some of the byproduct to heat his factory. Is that taxable ? The lumber company then creates wood products which includes paper and it sells the paper to the printer. The printer uses the paper to create adverstisments to promote its own company as well as for internal office supplies and prints the books for the distributor. Is that taxable ? The printer sells the printed material to the distributor who gives complimentary copies to his best customers and friends for their personal use. Is that taxable ? The distributor sells to the book stores and the book stores sells to the customer. I assume thats taxable. Then the customer sells the book on e-bay. Is that taxable ? What if a relative of the distributor who was given a number of free copies sold books on e-bay ? Is that taxable ? The second person to buy the book, reads it and sends it to recyle plant. The recycle plant makes newspaper and sells the paper to the NYT's. When the NYT's sells the newpaper, is that taxable ?
Final question about procedure. Each step along the way, taxes might be due from folks who are not ordinarily considered retailers. Tell me again how the IRS would not be needed ?
The product of his labor is the income he receives from selling the rights to the book to the publisher. Which is compeltely untaxed. Period.
I have some questions about the paper in our book. The lumber company purchases trees and harvests them for its use to produce products and uses some of the byproduct to heat his factory. Is that taxable ?
No.
The lumber company then creates wood products which includes paper and it sells the paper to the printer. The printer uses the paper to create adverstisments to promote its own company as well as for internal office supplies and prints the books for the distributor. Is that taxable ?
No.
The printer sells the printed material to the distributor who gives complimentary copies to his best customers and friends for their personal use. Is that taxable ?
Yes. Tax is due on the fair-market value of the item.
The distributor sells to the book stores and the book stores sells to the customer. I assume thats taxable. Then the customer sells the book on e-bay. Is that taxable ?
The resale of the book on eBay is not taxable. If the person selling on eBay had purchased the book only to resell it, then the original bookstore purchase would not have been taxable but the eBay purchase would have been.
What if a relative of the distributor who was given a number of free copies sold books on e-bay ? Is that taxable ?
As in the case described a little ways above, tax would have been due on the fair-market value when they were converted from business inventory to personal property but not when re-sold on eBay. Again, if this was a business arrangement, then the free copies would not have been taxable, but the eBay sales would be.
The second person to buy the book, reads it and sends it to recyle plant. The recycle plant makes newspaper and sells the paper to the NYT's. When the NYT's sells the newpaper, is that taxable ?
Yes. The new product created by the NYT would be taxable. Note that the NYT would not pay tax when they bought the recycled paper.
Final question about procedure. Each step along the way, taxes might be due from folks who are not ordinarily considered retailers. Tell me again how the IRS would not be needed ?
It works the same way as any state sales tax, and would be administered locally, not in DC.
The VALUE of his services is directly reduced by all of the multiple taxes that are imposed because the net projected profits are used to determine his royalty. Seeing that he only wrote one book, his efforts are being taxed multiple times.
Then you have taxed the paper twice. I thought you said there was only one tax ?
You are assuming that profits are affected by the tax. Show me the math.
(BTW -- this will be my last response for a couple of days, as I am getting ready to go out of town and will be FR-less. Hopefully, the withdrawal symptoms will not be fatal.)
Income taxes are adminsitered locally. In any case, each state is going to have to vastly increase their tax departments. How will a state that doesn't have jurisdiction in other states going to audit companies who are in multiple states ? Keep in mind that someone needs to check all sorts of off the book transations to be sure they are not bypassing the tax. That takes manpower and it takes folks pouring through transactions, courts, etc.
Of course profits are affected by tax. Tax impacts the ultimate sales price that can be levied.
Can't you just see it? Another few pages to the income tax forms for health exemptions from the food tax.
The idea is just so impratical. Just tax all foods or no foods. And, you know a tax on all foods would never pass any legislature...nobody likes a tax unless someone else pays it.
In what universe? They're collected locally (most of the time), but are administered centrally from the IRS in Washington. Sales taxes are administered within the states themselves, and at the point of sale.
In any case, each state is going to have to vastly increase their tax departments.
Also incorrect. 45 states plus Washington DC already have sales taxes and are currently monitoring those points of sale. If anything, the reduction in complexity in the sales tax code would reduce, not increase, the enforcement effort. In any case, part of the sales tax rate goes to the business and the state as compensation for their efforts.
How will a state that doesn't have jurisdiction in other states going to audit companies who are in multiple states ?
I would expect that each state would audit the points of sale within their own borders. They wouldn't need to audit beyond their own state lines, since the tax is enforced not at the corporate level, but at the point of sale.
The newspaper is a new product. Since the old product was recycled, it ceased to exist as a separate product. Now, if you had sold that book to the recycler, they could have taken a tax credit for the portion of the purchase price that was tax...
I'll agree with that, but only to the point that it is an impact on the price that the purchaser will bear. By replacing an income tax with a sales tax, people will have far more disposable income (not having FICA taxes or income taxes deducted from their income), which also needs to be factored into the mix. The tax on the final purchase is also offset, in whole or in part, by the savings throughout the chain of production due to the removal of income and payroll taxes.
Don't make the mistake of assuming that prices under an NRST are today's prices plus the NRST rate -- you have to remember that a significant percentage of the price you pay today (and correspondingly, the prices that are paid at each stage of the production chain) is a result of the income tax.
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