Sales Tax and Mass Transit

The following is adapted from material I submitted to a Blog owned by RRNET Member Li Loco

It would appear that two factors are now affecting mass transit ridership and I would hope that those formulating mass transit policy will clearly distinguish such.

First, to what extent has mass transit ridership, both at agencies that are publicly singing the "We're Broke Blues as well as those that have yet to do so, declined simply because there are more people out of work and hence no need to use mass transit for a commute AND to what extent ridership has been affected because "gas is down so we don't need mass transit anymore".

Germane to any discussion of this issue is that a whole new parameter has come into play for any mass transit agency that is funded by a permanent excise tax base, as distinct from the model of Amtrak, that must go on the annual "begathon' to Congress for an appropriation. Many an agency funded by a dedicated excise tax (in most cases a component of a prevailing Local "Sales Tax"), are now finding the stark reality that these revenue sources can decline. People are buying less junk, and so goes 'Sales Tax' revenues - the wrong way. While this funding model was wise so long as 'Sales Tax" revenues were deemed to go "up and up", the reverse becomes painfully evident first from our current "Great Recession', but should such result even after the economy recovers in a societal change that now has deemed that conspicuous consumption is "oh so out", then any program funded by means of a dedicated excise tax base is in big trouble. Highways are looking at the same funding shortfall as Motor Fuel Taxes decline not only from the present reduced economic activity, but also from again a societal change that the Yukon and Expedition belonged to an age gone by.

Here in Illinois, there appears to be recognition of this little "factoid of life'. Consumption is down either because of unemployment or the "consumption is out' sentiment I noted above. Now Governor Quinn has proposed legislation to raise the flat Individual Income Tax rate from the existing 3% to 4.5%. While so long as high unemployment persists, there will still be a revenue shortfall, but when the economy recovers, this little "wake up call' could well transform a consuming society into one of saving. That will have a devastating effect upon revenues generated by excise taxes - and those programs directly funded by such.

O tempora, O mores

Gilbert,I hear the same rumbling down here in TN. We have Zero Income tax, but a nearly 10% Sales Tax.

People today may be saving their income rather than spend it. Pay down those credit cars. Cut down the debt. Live on beans & rice till one can live debt-free (except for the house). Go back to a cash economy for most purchases.

The high sales tax rate means many purchases go out-of-state. The Internet & Ebay makes this possible. Try to find a hobby shop of any kind in the state. The folks at Atlas-Athearn etc find this to be a good market for HO & N scale items.

TDOT operates on a pay-as-you go basis. They must have the funds on hand before starting on a project. They do not have the ability to borrow funds to pave over the state. New roads may be built at a slower rate than other states, or we rely on federal funds to build Interstates & connections from the counties to them via 4lane highways. Good maintenance keeps them in better shape than most states. So far our "rush hour" jam lasts 2-3 hours.

Mass transit here needs a dedicated source of funding. so far, they get a portion of the local govmt's annual budget. Maybe it's not so different from Amtrak. It's just a different gov that levies the tax. The locals have to balance their budgets, so transit competes with schools, police, & other activity. We may end up with fewer other govm't services.

GWoodle wrote:The high sales tax rate means many purchases go out-of-state. The Internet & Ebay makes this possible. Try to find a hobby shop of any kind in the state. The folks at Atlas-Athearn etc find this to be a good market for HO & N scale items.

Mr. Woodle, even in view of that your above captioned comment is tangential to the subject at hand and the remainder of your posting makes good points, I feel very obliged to note that Tennessee and 44 other states impose a Use Tax on purchases, be they made from an out of state "point of sale" or over the internet. Internet shopping is NOT a tax dodge, although at times I question the means at hand for taxing authorities to enforce collection of such.

Some states allow a credit for "Sales Tax" paid on the purchase in another state, and collect only to the extent their rate would result in a higher tax, but others do not.

While the US Supreme Court decision in the matter of Quill v. North Dakota prohibits mandatory collection of "Sales Tax" by an out of state retailer (bad law AFAIC), several large internet retailers voluntarily choose to collect the "Sales Tax" for the states into which they ship customer purchases.

http://www.state.tn.us/revenue/tntaxes/salesanduse.htm

http://www.law.cornell.edu/supct/html/91-0194.ZO.html

http://www.nolo.com/article.cfm/objectI ... 7/167/ART/

Here in Atlanta, we are very aware of the cyclical nature of the sales tax based upon the economy and well aware of the differences in policies - at least those of us on the public transport side of things. Educating our legislators and decision makers is a different story. With regards to your question about ridership and whether it is it he economy or drop in fuel prices - since most customers of MARTA, our largest operator, would not make the trip if transit wasn't available we're already serving mostly the transit dependent in Atlanta who are not impacted by fuel prices. That said, while the region as a whole did experience a significant drop off in November and December in terms of total boardings of the system - it was only to previous 2007 levels. overall, for CY 2008, Atlanta's regional transit system saw an increase of 7.0% in total boardings - 8.6% or so on rail and 5.X% of bus (I'm waiting on confirmation of one system that carries ~15,000/day). Interestingly, I've started to get in January's numbers and bus ridership is recovering nicely while rail ridership remains at constant 2008 levels (Jan 09 compared to Jan 08). HOpefully, February numbers will be available soon to see if this trend continues. This suggests to me that while some people may have stopped riding because of lower gas prices and unemployment, there are still others who are riding. It is going to be interesting this year.

Read into this what you will - but our main problem down here is explaining to policy makers that while MARTA is doing better than budget, that budget was based upon sales tax projections that are not holding up and that are getting worse with every projection.

This has been an issue facing the MBTA here in Massachusetts ever since the agency was shifted to "forward funding," i.e., operating on a fixed budget with dedicated revenue sources, in 2001. Prior to that, the T operated on a bizarre system where bonds were issued to cover each year's operating deficit, and essentially the bill was handed to the state after the fact to pay. As you can imagine, the farebox recovery under such a system was not a high priority, and while fares were cheap, the recovery was miserable.

Unfortunately, the formula created put the MBTA on a three-part revenue stream. The first is fares, the second is assessments from municipalities in the service district, and the third is the state subsidy, which was set at 20% of sales tax revenues (currently at 5% in Mass.). Where the problem has come in is that that sales tax revenue has never lived up to anything close to expectations, as the calculations were done just prior to the dramatic upswing in out-of-state purchasing that the internet has generated. Combine that with two recessions, and it has left the T in a perpetual budget crisis ever since (especially when combined with a massive debt backlog from Big Dig-mandated expansion projects, and the remaining debt from the earlier operations prior to forward funding*). While farebox recovery has gone up, the other major funding sources have been at best stagnant, if not declining.

Where this has left us is a series of fare hikes (cash subway fare has gone from 85 cents to $2.00 in 10 years, with a possible increase to $2.60 looming, and outer commuter rail monthly fares are among the highest outside of the NYC metro area), parking fee increases (just recently doubled), and now a proposal to devote some of the proposed gas tax increase to fund the MTA and regional transit authorities. Governor Patrick has proposed, if I recall the numbers correctly, a 19 cents/gallon increase, with 6 cents/gallon going to fund transit. Needless to say, there is some considerable opposition to this, as this would raise Massachusetts' currently low gas tax in line or above some high tax neighbors like New York, Maine and Connecticut.

*The MBTA's debt burden is reportedly around $8 billion. Currently, debt service alone accounts for about 30-35% of the operating budget, and is increasing annually. At current funding levels, debt service required annually will surpass (if it hasn't already) the total fare revenue each year. Not that the rest of the state is in better shape - a recent report pegged the state's total transportation infrastructure backlog (just to bring highways and mass transit into a state of good repair) at around $16-20 billion.

http://news.cnet.com/8301-13578_3-10220 ... ml?tag=pop


Found this article over on Cnet. The Internet Sales Tax dodge may finally be closed. We will see what Congress does. I expect to see some form of Uniform State Sales Tax bill enacted. Not sure how much of the new revenue can go for transit. IMHO it may prevent the states from using gas taxes for other purposes.

Mr. Woodle, thank you for taking no offense to my pointing out above that the internet is not a 'tax dodge' with respect to Use Taxes on the sale of tangible personal property.

Unrelated, it is simply inevitable that i am going to have to either upgrade my existing three year old system to Vista or else replace it in its entirety. One of the reasons I am willing to stick with XP (when i bought this Dell system in 07, it could have had been sold at buyer's option with either Vista or XP), is that i would have to replace my existing Lotus Release 9.0 spreadsheet software with, or so I thought, Excel. At my age (68), I really do not wish to learn a new spreadsheet virtually from scratch as i have used Lotus since the 1980's, or otherwise Release 2.2.

However, i have now learned that Lotus has a version upgraded to run on Vista, so that little "barrier' may be out of the way. But more to the point, I noted this "no Sales Tax' web site:

http://www.everythingoutlet.com/p_0570S ... DQodkGE69A

As the mature and fair minded guy I know you to be through the material you submit here at RRNET, i know you have about as much use for this tripe as do I. I guarantee you, as a retired CPA, that a taxing agency would "uh, not exactly" consider a taxpayer's possible defense of a Sales Tax deficiency as "hey they said no Sales Tax' to meet the criteria of 'reasonable'.

Mr Gilbert, I was in no way offended by your earlier post. What we may find and agree on is the inabilaty of some states to collect the sales/use tax they impose. I suspect they do better on large ticket items like cars, boats, ect that have a registration process for the consumer to use them.

After relocating to TN from IL, it has been fun to compare the 2 states. At least the embarrassment of Blago is finally gone. Time for him to go off to the IL Gov's cell. At least in TN we sent some state legislators to their cell sinc they had their hands out for money.

Where this topic makes it's main point is the failure so far is the failure to support transit districts similar to the RTA system in IL. We may still be back in the stone age where the road builders guard the gas tax to go for roads only, no transit, no something else. The state & city govm't's are in a cut spending mode with the poor economy. There is no mood for higher taxes.

Something tells me this "cap & trade" scheme offers a new opportunity for politicians to stick it to the taxpayers. NARP regards this as a new way to support Amtrak.

If you have time to come down & visit, ride our little commuter train. Once you get aboard, you may feel at home on the old cars.