The following is an excerpt (with dates changed) from Against the Grain , a seri
ID: 2574014 • Letter: T
Question
The following is an excerpt (with dates changed) from Against the Grain, a series of recommendations by the State Comptroller of Texas on how to “save” $4.5 billion and thereby balance the state’s budget:
Require an Annual August Remittance of One-Half of August’s Sales Tax Collections by Monthly Taxpayers. The Legislature should require sales taxpayers to remit half of August’s collections during that month.
Background
Currently, sales tax payments are remitted either monthly, quarterly, or annually. They also may be prepaid either on a quarterly or on a monthly basis.
Monthly taxpayers, including those who collect taxes on their own purchase or use of taxable items, are required by law to remit to the state all tax collections—less any applicable discounts—by the twentieth day of the month following the end of each calendar month. The state’s fiscal year ends on August 31.
Recommendation
The Legislature should require all monthly taxpayers to remit one-half of each August’s sales tax collections during that month.
Specifically, sales taxes collected between August 1 and August 15 would be due with their regular August 20th payment. Monthly taxpayers would remit tax in the usual manner during all other months.
This is not a prepayment plan, but a speeding up of the remittance of actual taxes collected and owed to the state. This would impose an additional burden and would reduce taxpayer cash flow, but should be considered as preferable to a tax increase.
Implications
An annual payment by monthly filers of taxes actually collected during the first 15 days of August would increase August’s collections and decrease September’s collections. Although the initial imposition of this proposal might temporarily inconvenience some taxpayers, the prompt payment to the state of some of its sales tax revenues—collected, but not yet remitted—will enhance the revenue stream at a critical time each fiscal year. During the first year of implementation, all months would have normal collection patterns except August, which would be larger than usual, thereby producing a fiscal gain.
Each following year would see smaller than normal (current) collections in September and larger collections in August. These differences would essentially offset each other. It is important to stress that failure to speed up collections each year after implementation would cause a fiscal loss. The gain to the general fund in the year of implementation would be $215 million.
Fiscal Year Gain to the General Revenue Fund
2016 $215,113,000
2017 $ 0
2018 $ 0
2019 $ 0
2020
1b. Do you believe the state will be better off, in economic substance, as a result of the proposed change?
2. According to the comptroller (last paragraph), the change would have no impact on revenues in future fiscal years as long as collections are also pushed forward in those years. Do you agree? If so, is there any reason not to adopt the proposal?
Explanation / Answer
1. I am of the opinion that proposed change will not bring much difference as increased inflow in August will be offset by decreased inflow of September. Also, this proposed change will bring some difficulties with it on the end of taxpayers as they would be then required to complete their books within 15 days after the beginning of month for August. Normally businessman accounts for or records or analyzes monthly income expense and other relevant norms. This proposal would disturb taxpayer. Instead of focusing into business in the last month of fiscal year, it would now require to shift its focus for completing government procedures. He is already burdened with year end closing task and this proposal of paying sales tax within 15 days will only add to its burden. Although government might be better of applying this proposal but this definitely will not be a welcome change on the end of taxpayer.
2. As it is said that there would be no impact on revenues in future fiscal years if collections are also pushed forward in those years, I think now there is no meaning in implementing proposal as it would benefit only current year deficit but at the same time it will create big issue for the taxpayer.
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