Question

Some states exclude necessities, such as food and clothing, from their sales tax. Other states do not.

• Consider New York state, does it exclude necessities, why or why not?
• As with all things, one decision can lead to another. Once necessities are excluded, “necessities” must be defined. Research the tax definition of “necessity” in New York (or another if your state does not exclude) and evaluate it.

Answer 1

It's less efficient to exclude food and clothing, as you have introduced complexity to the collection of sales tax.

It's more equitable and more moral to exclude food and clothing, as they are necessities. They should not be taxed at the same level as luxuries or "sin goods" such as tobacco or alcohol.

Efficiency: This is inefficient, since it encourages all consumers to favor the items with the lower tax rates (food and clothing, for example). People will tend to consume more of these goods than they would ideally want, because of the artificially lower prices.

Equity: Since these items occupy a larger share of the budgets of low-income households, a sales tax that exempts necessities is regressive --- that is, it places a lower burden on low-income families.

Sales Tax: The second largest source of NYS tax revenues is the Sales/Use Tax. accounting for 18.2% of NYS tax revenues and 8.3% of total State revenues. The Sales Tax is imposed on the sale of most goods purchased( such as food and clothing)in NYS and on enumerated services provided in the State. The Compensating Use Tax is imposed on purchases made outside of the State and brought into it for use.