A New Panel Database on Business Incentives for Economic Development Offered by State and Local Governments in the United States

Abstract

As mentioned in the text discussion, the sales tax "burden" on business-location decisions is NOT what the business pays on its own sales, but rather how much in taxes the firm will pay in sales tax on its purchase of business inputs from other businesses.We assume sales tax paid by the firm based on its sales within the state is passed on to the buyers and does not burden the firm.But the firm is burdened by sales taxes on its business inputs.The business inputs to be considered are the following:  The firm's initial purchase of the building, which is assumed to be newly constructed. The firm's initial purchase of machinery and equipment. The firm's annual purchase each year of sufficient building investment and machinery and equipment investment to offset the annual depreciation of these items. The firm's annual purchases each year of intermediate inputs: materials, energy, and services.Given the structure of the model-a firm locating in a state, then building and equipping a new plant from scratch-the potential sales tax burden will be very large the first year, and smaller but persistent in subsequent years.We therefore have to determine the sales tax rate that applies in the state each year to the following categories: building construction  machinery and equipment  materials  energy  services

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