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.

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.

RELATED TERMS
  1. Implied Volatility - IV

    The estimated volatility of a security's price.
  2. Plain Vanilla

    The most basic or standard version of a financial instrument, ...
  3. Operating Cost

    Expenses associated with the maintenance and administration of ...
  4. Equity Market

    The market in which shares are issued and traded, either through ...
  5. Trade Credit

    An agreement where a customer can purchase goods on account (without ...
  6. Normal Profit

    An economic condition occurring when the difference between a ...
Related Articles
  1. Credit & Loans

    Millennials Guide: Buying Your First House

    Millennial homebuyers need to research a lot of things, such as how much to pay, down payments, PMI, FHA loans and special programs for first-time buyers.
  2. Term

    Understanding Total Returns

    Total return measures the rate of return earned from an investment over a period of time.
  3. Term

    What is a Prime Brokerage?

    A prime brokerage offers special services to certain clients.
  4. Term

    What is a Preemptive Right?

    A preemptive right allows select shareholders to buy newly issued shares in their corporation before the general public.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares US Basic Materials

    Learn about the iShares US Basic Materials exchange-traded fund, which invests in the equities of chemicals, metals and industrial gas companies.
  6. Trading Strategies

    Stock Trading for Free: Now a Reality

    Believe it or not, you can now trade stocks and ETFs for free. Here's a look at providers offering commission-free trading.
  7. Term

    What are Pension Funds?

    A pension fund is a company-sponsored fund that provides income for employees in retirement.
  8. Chart Advisor

    Big Double Top Patterns On the Verge of Breaking

    These stocks have created big double top chart patterns, and are on the verge of breaking the patterns to the downside--a bearish signal.
  9. Term

    What is Passive Income?

    Passive income is earned by someone from ventures in which they did not actively participate.
  10. Options & Futures

    Analyzing The 5 Most Liquid Commodity Futures

    Crude oil leads the pack as the most liquid commodity futures market, followed by corn and natural gas.
RELATED FAQS
  1. Can mutual funds outperform savings accounts?

    A mutual fund can – and should – outperform a savings account. In most cases, it should not even be a close race. Savings ... Read Full Answer >>
  2. Can mutual funds invest in private companies?

    Mutual funds can invest in private companies, which may come as a surprise to many investors. It is rare for a fund to have ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. Can my IRA be garnished for child support?

    Though some states protect IRA savings from garnishment of any kind, most states lift this exemption in cases where the account ... Read Full Answer >>
  5. Why is my 401(k) not FDIC-Insured?

    401(k) plans are not FDIC-insured because they are typically composed of investments rather than deposits. The Federal Deposit ... Read Full Answer >>
  6. Can I use my IRA savings to start my own savings?

    While there is no legal reason why you cannot withdraw funds from your IRA to start a traditional savings account, it is ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  2. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  3. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  4. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  5. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  6. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!