A new study by Good Jobs First, a Washington DC nonprofit research group, estimates* Wal-Mart (NYSE:WMT) kept about $60 million in retail sales tax last year from state vendor compensation programs that allow Wal-Mart and other retailers to keep a portion of the sales tax revenue they collect.
While state governments are seeking money from the federal government to make up for budget shortfalls caused by lower tax revenue and other problems related to the financial crisis, 26 states still have laws on their books dating back to the era before computerized cash registers allowing retailers to be compensated for collecting sales tax. Illinois ($126.1 million), Texas ($89.6 million), and Pennsylvania ($72.0 million) are the top three of 13 states that have no cap on the amount of sales tax retailers can keep, according to an article in today's Wall Street Journal. The amounts listed represent the annual revenue these states forfeited to retailers in 2007, out of an estimated total $1 billion per year revenue loss in all 26 states.
Accounting firm PwC estimated in a 2006 survey the average net cost of collecting sales taxes was 3.1% of the sum collected. There's no question it costs retailers money to collect state sales tax, as state and local governments make it complicated for retailers to determine what goods and services are taxed and what cities and towns impose their own sales tax on top of the state sales tax. This can be particularly burdensome for small "mom and pop" vendors.
However, consumers will no doubt view this as another giveaway to retail behemoths like Wal-Mart. Cash-strapped consumers are not going to appreciate being hit with property tax bills that no longer reflect the current value of their home, along with increased government user and permit fees, while retailers keep a portion of the sales tax. After all, consumers do not get compensated for the time and expense to comply in filing their tax returns!
* The WSJ reports the estimate was based on sales tax data from financial reports from Wal-Mart's website.
Disclosure: I own WMT put options.