A city that previously operated as a sales tax haven may struggle in the short term to operate with reduced income as businesses choose to terminate rebate agreements, but it ultimately has the opportunity to re-establish fiscal security based on sound financial management and re-optimized revenues, leading in turn to stronger bond ratings. Until then, these communities will struggle to maintain quality bond ratings.
Credit agencies such as Standard and Poor’s allocate a significant number of points to evidence of this kind of stability: the Village of Harwood Heights is just one, positive example of a community that has managed to regain its A+ rating after weathering the Great Recession, thanks to an improvement in liquidity without the use of sales tax rebate sharing agreements that are being challenged in court. Download the case study.
Preventing Potential Revenue Leaks
City managers may be well aware of potential revenue leaks from consumption-based taxes, but there are many practical obstacles that prevent them from tracking the income that they are due. Address data may be constantly evolving as businesses change in the community, and while new business development is an encouraging sign, it only increases the burden on local government staff who have to monitor these continual changes. Many municipalities are therefore choosing to outsource their sales tax reviews to a specialist firm with the technical expertise and local knowledge necessary to uncover missing revenue that may have gone undetected for several years.
Alternative Service Delivery Helps Local Government to Keep Track
Now that the “order acceptance test” will no longer be the sole criterion for the levy of sales tax, it is likely that fewer companies will offset their tax liability through rebate agreements and other incentive schemes. But as the economy recovers and online sales increase year by year, the new concepts and assessment factors introduced in the Department of Revenue’s “Proposed Regulations Regarding Local Tax Sourcing” are likely to bring fresh confusion and uncertainty. An increasing number of municipalities are realizing that there is no effective substitute for an independent sales tax review based on a comprehensive address audit and business license program, enabling them to ensure the accurate computation and collection of sales and excise taxes on transactions conducted in their jurisdiction.
