Tax Exporting

AAA

DEFINITION of 'Tax Exporting'

The raising of revenue for one jurisdiction through the levying of taxes on residents of another jurisdiction. This means nonresidents pay for a share of the public services they benefit from while visiting another state. Without tax exporting, residents would pay for public service provision to visiting nonresidents. However, tax exporting can also discourage nonresidents from visiting another state if its tax exporting policy makes the activities they want to enjoy too expensive.

INVESTOPEDIA EXPLAINS 'Tax Exporting'

Examples of tax exporting:

  • Out-of-state visitors gambling in Las Vegas  pay taxes that benefit the state of Nevada and its residents.
  • Out-of-state visitors to California pay hotel taxes and other tourist taxes that benefit residents of California cities.
  • Homestead exemptions, which lower property taxes for owner-occupant homeowners, shift the property tax burden to homeowners who don’t occupy their properties, some of whom are out-of-state investors (especially in popular travel destinations). The taxes are therefore "exported" to homeowners who live out of state.

Tax exporting has negative effects on the nonresidents who pay the taxes, and potentially on their home states. If Janet, a resident of California, spends more when she goes to Las Vegas (because of gambling taxes), she will have less money to spend at businesses in California, and she will pay less California sales tax as a result. Both businesses and the state treasury in California may take in less revenue because of Nevada’s tax exporting.

While voters may support tax exporting (they’re seemingly approving a tax that they won’t have to pay), certain tax exporting strategies, such as taxing tourism, mean state residents still end up paying higher taxes, because people often travel within their home states. Tax exporters must strike a delicate balance between raising revenue and not discouraging nonresidents and residents from partaking in the taxable activity.

RELATED TERMS
  1. Medigap insurance

    Definition of Medigap
  2. Estimated Recovery Value (ERV)

    The projected value of an asset that can be recovered in the ...
  3. Book Value Reduction

    Reducing the value at which an asset is carried on the books ...
  4. Registered Holder

    Shareholders who hold their shares directly with a company.
  5. Recovery Rate

    The extent to which principal and accrued interest on a debt ...
  6. Accelerated Dividend

    Special dividends paid by a company ahead of an imminent change ...
Related Articles
  1. Starbucks As An Example Of The Value ...
    Investing News

    Starbucks As An Example Of The Value ...

  2. How Does A Reverse Mortgage Work?
    Retirement

    How Does A Reverse Mortgage Work?

  3. Why Retirement Income Now Costs More
    Retirement

    Why Retirement Income Now Costs More

  4. 5 Key Factors Your Financial Plan May ...
    Retirement

    5 Key Factors Your Financial Plan May ...

Hot Definitions
  1. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center