Taxes: Where’s the Tax?

Candi Clouse, PhD

January 07, 2020 22:01

INTRODUCTION

As any CPA will tell you, understanding taxes is a big job. Taxes vary by locality, special district, and state. There are also differences by Industry as some businesses are required to pay taxes specific to their work. The Generation and Interpretation of IMPLAN’s Tax Report article provides detail on the data sources and estimation methods used by IMPLAN to compile total tax estimates by region. This article outlines the basics of how taxes work in IMPLAN, what is included in each type of tax, who remits the tax, and which level of government receives the tax.

TAX IMPACT CONSIDERATIONS

The Tax Impact Report from an analysis provides detailed information about taxes and other payments received by governments. It is calculated based on the collected and reported taxes within the region for the given data year. The categories within the Tax Impact Report correspond to the categories found in the Detailed Social Accounting Matrix (SAM). Within the SAM and Tax Impact report, tax revenue flows to the government via different tax types and from various paying entities. Navigate to Region Details to explore the SAM for any given region within IMPLAN.

The Tax Impact Report is supplemental to the economic impact estimates from an IMPLAN analysis. These tax results cannot be added to any summary or detailed economic indicator results as they are a portion of Total Output (by Direct, Indirect, and Induced Effects).

It is possible for an analyst to have more specific data around taxes paid by the directly analyzed Industry than the estimates provided by IMPLAN. When this is the case, these should be used to replace IMPLAN’s Direct tax estimates. However, it is recommended to still use IMPLAN’s Indirect and Induced tax estimates..

Taxes are levied at different levels of government. In IMPLAN, we display tax results for the following levels of government; Federal, State, County, Sub County General, and Sub County Special Districts. Sub County General includes city and township governments. Sub County Special includes fire and public school districts.

TAXES IN IMPLAN

This section breaks down each type of tax by category. If you want to know where a specific tax exists in the IMPLAN data and Tax Impact Report, search for its name within the tables below using a keyword search (control + F). Under each tax type category there may be an entry for both “alcohol” and “liquor” to aid in searching. Note that a few types of taxes show up in more than one area. For example, motor vehicle taxes paid by a business are located in TOPI while motor vehicle taxes paid by individuals are located in Personal Income Tax. Please refer to the tax impact key and definitions in the Generation and Interpretation of IMPLAN’s Tax Report for clarification.

TAXES ON PRODUCTION & IMPORTS NET OF SUBSIDIES (TOPI)

Taxes on Production & Imports net of Subsidies (TOPI) is one of the four components of Value Added for a business. TOPI does not include all taxes paid by a business. For example, social insurance taxes are a part of Employee Compensation and profits taxes are part of OPI. Rather, TOPI is the amount a business is liable to remit to any level of government due to production or sales. In the SAM and Tax Impact Report, an Industry’s TOPI taxes will be paid by TOPI to Governments.

I-O and SAM models by default treat TOPI as a leakage, meaning that any TOPI generated as part of an analysis will not generate any additional Multiplier effects.

A few considerations specific to TOPI taxes:

TOPI can be negative for a given Industry in a given year if that Industry received more subsidies from the government than it paid out in these taxes in that year. For government enterprise Industries, subsidies from the same level of government (i.e. state to state, federal to federal) will show up in TOPI.
Total TOPI estimates in IMPLAN are Industry and geographically specific. However, the split of Total TOPI by tax category (i.e. sales tax, property tax, etc.) is not Industry specific, due to raw data limitations. As IMPLAN does not have data on Industry-specific taxes paid (other than total TOPI), the distribution will be an all Industry average for the region.
IMPLAN does not break out of the subcomponents of each tax receipt (i.e. Sales Tax) into additional detail (i.e. alcohol vs. occupancy) as there is no raw data source available for this estimate.
Even if the tax is treated as an excise tax, rather than a traditional sales tax in a certain state, it will still show up in IMPLAN as a sales tax. There is no excise tax category for State/Local Government in the Tax Impact Report. For example, if a resort tax is charged on a per-unit basis (i.e., $ per hotel room) then it is technically an excise tax; however, in our data source, state and local excise taxes are lumped in with sales tax and will therefore show up under Sales Tax in the IMPLAN tax report.
Total TOPI Property Tax reflects a combination of property taxes paid by businesses and property taxes paid by Households on their primary residences. Households pay Property Taxes on their primary residences through the Owner-occupied dwellings Industry. The property taxes shown in the Tax Impact Report as being paid by Households are for other big-ticket items such as boats and cars. To view only the TOPI Property taxes paid by the directly impacted business use the Impact Filter.
Direct TOPI Property Taxes on construction impacts are not property taxes on the built structure itself - just on the construction companies' properties. To get the building's property taxes you have to run the operations phase of the new business.

Type of Tax	Specific Taxes Included	Level of Government
Excise Tax	Air transportation, alcohol, biodiesel, cable, “Cadillac” tax (high-cost employer-sponsored health insurance), charitable hospitals for failure to meet the community health needs, cigarettes, cell phone, coal, crude oil windfall profit, development impact, diesel, fuel, environmental, gas-guzzler, gasoline, hazardous materials, health insurance, indoor tanning, inspection fee, insurance receipts, jewelry, liquor, medical devices, nuclear fuel, ozone-depleting chemicals, pharmaceutical, public utilities (electric, gas, phone), refunds (other than for alcohol and tobacco), satellite, tires, storage fee, soda, telephone, tobacco, trucks, windfall profit, wireless	Federal
Custom Duty	Custom duties, export tax, import tax, tariff	Federal
Sales Tax	Alcohol, amusement, bed, cigarettes, consumption, cosmetic medical procedures, fuel, gallonage, gasoline, general sales, gross receipts, hotel, insurance premium, internet, local general, lodging, liquor, luxury, meals, occupancy, other selective, parimutuels, plastic surgery, public utilities, recycling, sin tax, state general, sewer, ticket, tobacco, transfer, occupancy, resort, sin, turnover, use, utilities, waste management, value added (VAT), vanity tax, water	State, County, Sub County General, Sub County Special
Property Tax	Boats, business personal property, intangible property, machinery and equipment, property, real estate, school	State, County, Sub County General, Sub County Special
Motor Vehicle License	License fees - business, license plates, operators license - business, registration fees - business, vehicle license - business	State, County, Sub County General, Sub County Special
Severance Tax	Carbon dioxide, crude oil, natural gas, methane, severance, timber, uranium	State, County, Sub County General
Other Taxes	Alcoholic beverage license, amusements license, business license, business registration renewal, concession license, corporation license, documentary fee, documentary and stock transfer, fishing license, franchise tax, food and beverage license fees, hunting license, gun license, mortgage recording, Nonemployee Compensation (NEC), occupation and business license, other license, permit, public utility license, tourism license, stamp tax	State, Sub County General, Sub County Special
Special Assessments	Fee, fine, special assessment, toll	State, Sub County General, Sub County Special

SOCIAL INSURANCE TAXES

Social Insurance taxes (commonly referred to as payroll taxes) are paid from Employee Compensation (EC) and Proprietor Income (PI) earnings. For EC, Social Insurance taxes include both employee-paid and employer-paid portions. For PI, these taxes are only employee-paid as proprietors are self-employed. In the SAM and Tax Impact Report, Social Insurance taxes are payments from the Employee Compensation and Proprietor Income columns to Governments.

All EC payroll taxes are paid at the place of employment. PI payroll taxes are paid by place of residence as the place of employment is considered their residence.

Type of Tax	Specific Taxes Included	Level of Government
Employee Contribution	Disability, Children's Health Insurance Program (CHIP), estimated payments, Federal Insurance Contributions Act (FICA), IRA rollover, Medicare, Medicaid, non-qualified health savings account distributions, Old Age Survivors and Disability Insurance (OASDI), pay-as-you earn (PAYE), pay-as-you-go (PAYG), penalty for underpayment of estimated tax, retirement early withdrawal penalty, surtax, Social Security, survivors, State Government Retirement	Federal, State, County
Employer Contribution	Disability, hospital, Children's Health Insurance Program (CHIP), Federal Insurance Contributions Act (FICA), Federal Unemployment Tax Act (FUTA), Medicaid, Medicare, Military medical, Old Age, Survivors and Disability Insurance (OASDI), payroll, pension, Social Security, State Government Retirement, Federal Insurance Contributions Act (FICA), State Unemployment Tax Act (SUTA), survivors, retirement, Unemployment, Workers’ Compensation	Federal, State, County

CORPORATE TAXES

Corporate profits tax is a portion of an incorporated business’ Other Property Income (OPI). OPI represents gross operating surplus minus Proprietor Income for a business (also known as profit), which is then paid to the Private Enterprise Institution. In IMPLAN, the Private Enterprise Institution represents incorporated businesses (not proprietorships). Private Enterprises are treated as separate entities from the Industry itself. Enterprise income consists entirely of corporate profits (returns to capital and depreciation allowances). In the SAM and Tax Impact Report, corporate taxes will be paid by Enterprises to Governments.

Just like TOPI, I-O and SAM models by default treat OPI as a leakage, meaning that any OPI generated as part of an analysis (incorporated and unincorporated businesses alike) will not generate any additional effects. This is because there is no assumption built into the model as to how, when, and where OPI will be spent.

Type of Tax	Specific Taxes Included	Level of Government
Corporate Profits	Corporate profits tax, corporate income tax, private enterprise tax, profits tax	Federal, State, County, Sub County General

PERSONAL TAXES

Employees pay payroll tax on their Labor Income (EC + PI) and then pay personal tax on their Household Income, which may include more than just employment-based income. Personal income taxes are also paid on other types of income (e.g., rental income, dividend income, interest income, capital gains, retirement income). The effective personal income tax rate in IMPLAN is a weighted average of the individual rates of all these types, depending on the amount of each paid in a given region in a given year. In the SAM and Tax Impact Report, personal income taxes will be paid by Households to Governments.

In IMPLAN, all personal income tax is assumed to be paid at the place of residence. This is true of state and local personal income taxes on wage and salary income, regardless of the place of employment. 

Type of Tax	Specific Taxes Included	Level of Government
Personal Income Tax	Alternative Minimum, capital gain, dividend, income, individual income, interest income, Kiddie Tax (Tax on a Child's Investment and Other Unearned Income), personal income, rental income, wage income, withholding	Federal, State, County, Sub County General, Sub County Special
Motor Vehicle License	Cars - personal, motor vehicle - personal	State, County, Sub County General, Sub County Special
Property Tax	Boats, vehicles, personal property, intangible property, livestock	State, County, Sub County General, Sub County Special
Other Tax	Dog license, fishing license, hunting license, other personal license, pet license	State
Estate and Gift Tax¹	Death, estate, gift, inheritance	Federal

FILTERING DETAILED TAX IMPACT REPORT

The Detailed Tax Impact Report will display the total tax by receipt and level of government from an impact analysis. The total tax will be the sum of Direct, Indirect, and Induced Effect. To filter by Direct, Indirect, and Induced taxes in IMPLAN, users can click into the "Impact" Filter in the filter bar. This will provide the option of "Direct", "Indirect", and "Induced". Making a selection and clicking the Refresh button will apply the filter and only show the Tax Results as specified. If no selection is made, users will view the total Tax Results.

MODELING TAX CHANGES

Every analysis in IMPLAN will give you tax results, however, specifically modeling tax impacts falls under the heading of socio-political impacts. Therefore in order to model a tax impact or change, the analyst needs to determine what the change to the economy would look like because of the tax impact/change. For more information, visit the Project Design section.