Sales Tax Funds and Community Projects

 

One thing you might notice during this year’s elections are special ballot initiatives to raise sales tax.

With primaries and elections coming up very soon in many states, some of these initiatives to increase sales taxes for special projects will be on the ballot this spring. And in November, it’s likely there will be even more. But why are some projects covered by sales taxes? And how does it work? It’s all part of the elaborate sales tax laws in your area — and it can be a great way to understand what happens to sales tax dollars.

Usually we only talk about the business side of sales tax, like how to calculate it correctly and ensure your business is complying, but sometimes we can get greater insights by looking at the intentions of sales taxes. Sales tax is intended, in most cases, to pay for projects and services that will be used by the people who pay the taxes. For instance, gas taxes are a popular way for state governments to pay for roadway projects because it primarily taxes the people who are using the roads in the state. Of course, you’ll pay the tax when filling up your lawn mower over the summer, too, so it’s not a perfect solution. In some states, they have laws that allow the state or municipalities to have a millage increase, a percentage of a cent of added tax, that creates a special sales tax. Sometimes these laws only include certain items, like gasoline, or they might be applicable to anything that’s taxable according to state laws.

Once the new sales tax millage increase is approved by voters, the sales tax starts up and is remitted by businesses to the state or municipal government, depending on how the state’s laws dictate that sales tax be remitted. After the money is in the hands of the state or municipal government, they use the amount to pay themselves back for the costs of doing the project they’ve already paid. Typically, road projects take anywhere between a few weeks to a few months to complete, but millage increases won’t raise enough to cover those costs in matter of weeks or months.

Since it can take a long time for the money to accumulate enough to pay for the project, the sales tax increases might last for years. It’s just another example showing that money is easier to spend than to earn. Voters get a chance to decide whether they’re willing to pay for new projects. If they say they will, your business has no choice but to collect and remit those taxes.

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