Time to Adoption of Local Option Sales Taxes

Abstract

This study examines the time to adoption of municipal local option sales taxes (LOSTs) in Texas from 1967 to 2012. General-purpose LOSTs were introduced in 1968 and were the only LOSTs available to local governments until 1988, when four earmarked LOSTs were permitted for municipalities. Counties and special districts were also allowed to adopt LOSTs beginning in 1988. Using a Cox proportional hazard model and a variation that allows for repeating events, this study finds that proximity to major highways and state and national borders and LOST rates within and around a municipality affect time to adoption.

The Adoption of Local Option Fuel Taxes: Evidence From Florida Counties

“…We find no support for hypothesis 4 that neighbor's LOFT adoptions will affect the timing of adoption. This finding is in contrast with existing LOST adoption literature (Afonso 2016;Burge and Piper 2012;Burge and Rogers 2016;Sjoquist et al 2007;Zhao 2005). There is minimal evidence that supports hypothesis 2 that fiscal stress increases the hazard of adopting a LOFT.…”

“…However, for the same period, we find that counties with LOFT-1 in place had an increased hazard of adopting LOFT-2. This finding is consistent with a previous study that examines multiple adoptions of local sales taxes (Afonso 2016). The results for LOFT-1 suggested that LOFT-1 and LOFT-2 were substitutes, but these results suggest that LOFT-1 may be a complement to LOFT-2.…”

“…Its coefficient has an expected negative sign and implies that if the county borders Alabama, time to adoption is expected to increase. This is in keeping with a large body of the local sales tax literature that often finds that border counties are concerned with cross-border shopping and keep their rates lower (Afonso 2016;Agrawal 2015;Burge and Piper 2012;Sjoquist et al 2007). This contrasts with the findings for LOFT-1 in period 3 and can possibly be explained by the changes taking place in Alabama.…”

“…In general, there are two different theoretical frameworks: tax competition and copycat behavior/ yardstick competition. Under a tax competition or strategic interaction framework, jurisdictions compete for a mobile tax base and tend to set tax rates lower than their neighbors to encourage tax leakage (Afonso 2016;Burge and Piper 2012;Sjoquist et al 2007). Applying this logic to the adoption of LOFTs suggests that when a county government adopts or increases a LOFT, consumers will shift away from that community to purchase gasoline in other areas.…”

“…On the other, counties may be less likely to adopt a LOFT if they already have a LOFT in place. This is because these jurisdictions with a LOFT already have a higher tax burden and voters dislike extra tax burden created by additional LOFTs (Afonso 2016;Besley and Rosen 1998;Devereux et al 2007). Considering the above discussion, there is no a priori expectation regarding the relationships posited.…”