Open Access Senior Honors Thesis
Department or School
Accounting and Finance
Every state throughout the United States of America incurs significant expenses each year. Unlike a for-profit business, states cannot attempt to cover these expenses by selling a product to generate revenues. Instead, revenues are acquired through four main sources: charges for services, operating grants and contributions, capital grants and contributions, and taxes.
Even though every state relies heavily on the generation of revenues from taxes, certain states choose not to put in place one of the two most significant tax revenue sources: the personal income tax and the sales tax; one state—Alaska—has chosen to circumvent both. Understanding how large an impact the abovementioned tax sources had on a state’s overall ability to generate revenues, and thus cover their expenses, it would be reasonable to assume the states that have chosen not to implement either the personal income tax or sales tax, or both, would be in a worse financial situation than the states that put both into practice. Through an analysis of the change in net assets as a percentage of total revenues, and the fund profit margin, for a total of twenty states— those that do not implement an income tax, a sales tax, or both, and those possessing the highest income tax rates and sales tax rates—it can be concluded that the aforementioned assumption is false.
Not having a personal income tax or a sales tax has little effect on the results of a state’s change in net assets as a percentage of total revenues and fund profit margin. The results of the analysis produced too great an assortment of positive and negative state financial positions to result in any real correlation. States with both an income tax and sales tax were just as likely to be in a negative financial situation as those states that did not possess an income tax or sales tax, and vice versa. It really boils down to how efficiently and effectively a governmental entity spends, having an approximate idea of how much revenue they will generate with or without an income tax or sales tax. Total expenditures on a per capita level may suffer a bit in states that do not have an income tax or sales tax, but there is no evidence to suggest that not having one or both of these taxes has an effect on a state’s “profit margin” figures. The tables that follow provide evidence supporting the conclusion of the conducted analysis.
Kurek, Anthony D., "Governmental accounting research: An analysis of state performance" (2004). Senior Honors Theses & Projects. 72.