Skip To Primary Navigation Skip To Main Content Skip To Footer

State Sales Taxes: Too Narrowly Based and Overdue for Massive Reform?

Creative business team actively collaborating in office space

The U.S. tax system is perilously unbalanced, according to a comprehensive report published by the State Tax Research Institute (STRI). Our tax system relies too much on income, payroll and property taxes, and not enough on consumption taxes. State indirect tax systems should be replaced with a broad-based general consumption tax that can generate significant revenue while minimizing the impact on economic growth.

That’s the core argument advanced in a report with a title that pulls no punches: A Global Perspective on U.S. State Sales Tax Systems as a Revenue Source: Inefficient, Ineffective, and Obsolete. STRI is an organization that provides educational programs and conducts research to enhance public dialogue around state and local tax policy.

Here’s the crux of the argument: Taxes on consumption are an effective way for governments to raise revenue without impeding growth or international competitiveness. But compared with other advanced nations, the U.S. makes relatively little use of them, as a share of overall taxes. And, of course, at the federal level there is no general consumption tax.

State and local retail sales taxes are poorly designed, too narrowly based, and lacking in harmonization. For example, the report mentions the lack of uniformity in goods included in the tax base: “In 2018, of the forty-six states (including D.C.) with sales taxes, seven taxed food for home consumption; twenty-one taxed residential electricity and gas; thirty-five taxed nonprescription drugs; and thirty-eight taxed clothing.”

This variability won’t come as news to tax professionals long accustomed to dealing with multiple jurisdictions and the endless volatility of tax rules and rate changes. Take a look at our 2022 Mid-Year Sales Tax Rates and Rules Report for the latest statistics and trends.

The STRI report notes that an international perspective can suggest some ways forward. It provides an in-depth view of primary consumption taxes in the European Union and Canada, as well as a discussion of some options for systemic change for U.S. policymakers.

Whether or not you agree with the authors’ line of reasoning, there’s plenty of substance here that merits our attention as tax professionals and as citizens.

Blog Author

Michael J. Bernard, Chief Tax Officer – Transaction Tax at Vertex Inc. Vertex's Chief Tax Office (CTO) provides insight regarding the impact of tax regulations, policy, enforcement, and emerging technology trends on global tax department operations.

Michael J. Bernard

Vice President of Tax Content and Chief Tax Officer

See All Resources by Michael

Michael Bernard is the Chief Tax Officer of Transaction Tax. In his role, he provides insight and thought leadership around tax department operations, U.S. indirect tax, tax risk management, and tax policy, as well as emerging tax trends. He is an executive-level tax attorney with a diverse portfolio of experience in corporate tax, administration, and finance, including a substantive knowledge of U.S. and international tax laws.

Prior to joining Vertex, Michael was in various tax leadership roles at Microsoft Corporation for 28 years, the most recent being Senior Director – Tax Counsel. Michael led teams in the following functional areas: direct and indirect tax controversy, sales and use, business license, property, tax IT, SOX, and telecommunications. He also co-led a corporate taxpayer advocacy group with the Washington Department of Revenue and was a Director on the Board of the Washington Research Council. Michael has also testified before administrative and lawmakers at both the federal and state level.

Michael earned both a J.D. and a Bachelor of Science in Business Administration from Creighton University. He is a part-time lecturer of Law in the LLM program at the University of Washington School of Law. Michael also served on the board of directors, executive committee, and chaired committees for The Tax Executives Institute (TEI) for nearly 25 years.