End Tax Floats by Taxing Receivables or Deferring Payables
Calvin H. Johnson
University of Texas at Austin - School of Law
Gregg D. Polsky
University of North Carolina (UNC) at Chapel Hill - School of Law
December 13, 2010
Tax Notes, Vol. 129, p. 1243, December, 2010
The Shelf Project
Current law allows businesses that sell services or receive rents or royalties to pay tax on the receivables only when they are collected. Exclusion of receivables under current law allows ‘‘tax floats,’’ under which the customer or client immediately deducts the liability but the recipient does not simultaneously include the liability in income. Tax floats make government revenue fall between the cracks and give a welfare-like subsidy to transactions with no special merit. Receivables can be replicated every year, so they are best viewed as a continuous pool or river, with the tax float continuing until the end of the business. Extending credit to customers is an income-producing investment, and it is possible, as a matter of economics, to tax the profit.
This proposal would end tax floats by taxing the receivables or by deferring the deduction of a payable until it is paid. The proposal generally would include a service, rent, or royalty receivable in income no later than when the bill is sent out. The Shelf Project is a collaboration among tax professionals to develop proposals to raise revenue in the impending revenue crisis by defending the tax base. It is intended to raise revenue without a VAT or a rate increase in ways that will improve the fairness, efficiency, and rationality of the tax system. The hard work needs to be done now to develop viable proposals. Shelf projects are intended to foreclose both 85 percent income tax rates and 60 percent federal sales taxes.
Number of Pages in PDF File: 14Accepted Paper Series
Date posted: May 30, 2012
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