US Tax Panel Urged To Consider State Taxation

by Leroy Baker, Tax-News.com, New York

20 April 2005

The US Presidential Advisory Panel for Federal Tax Reform has been warned that it must also take into account state tax systems if it is to achieve its ultimate goal of simplifying the nation's tax system.

Testifying before the panel during its seventh meeting at the University of Maryland on Monday, Utah state Tax Commissioner R. Bruce Johnson, representing the Multistate Tax Commission, warned that the outcome of federal tax reform will be blunted if efforts are not made to simultaneously address state tax systems.

"If restructuring does not take state taxes into account, state policy actions may negate any benefits of federal reform," he explained.

Johnson noted that state and federal tax systems are deeply intertwined, as most states use federal adjusted gross income to determine state income tax liability. What's more, state and local governments receive about one third of their revenues from sales tax, two issues which Johnson observed will pose serious difficulties in the formulation of a potential national sales tax.

"If the federal government were to adopt a Value Added Tax (VAT) or a National Retail Sales Tax, simplification of the federal tax system may be achieved at the expense of greater overall complexity," he remarked.

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