The Design of a Digital Sales Tax Base to Include B2C Products and Exempt B2B Purchases

• In Event: Crypto, Credits, and Consumption: Tax Policy in a Changing Economy

Abstract

This paper discusses how to design a state and local sales tax system that has a broad business-to-consumer (B2C) and a narrow business-to-business (B2B) tax base by looking back to U.S. states' adoption of retail sales taxes in the 1930s and 1940s and the approaches to avoiding sales tax pyramiding in the manufacturing sector. The paper also discusses the very uneven record of the states in exempting from the sales tax base business purchases outside the manufacturing sector, including in the fast-growing digital economy. Finally, the paper explores the political and economic advantages of expanding the sales tax base to B2C digital products while exempting B2B digital products.

Author

• Karl Frieden, Council On State Taxation