Tax Exporting

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.

BREAKING DOWN '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.

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