Sales and Use Taxes: Investigating the Administrative and Compliance Costs for U.S. Small Businesses

This article surveys the existing literature on the compliance and administrative costs of VAT incurred by the businesses and the governments respectively. The review focuses on the concepts and components of VAT operating costs, the link between the tax compliance costs and the tax compliance decision, factors associated with compliance costs and the steps taken by various countries to mitigate these costs. The major studies of VAT compliance cost since 1980 and the methodologies adopted are summarised. The review of the studies shows that the VAT compliance costs are higher and significant in both absolute money terms and relative to tax revenue in developed as well as developing countries than the administrative costs and the compliance costs are highly regressive in nature which disproportionately affects the small businesses. Further, the psychological costs are underexplored in the VAT compliance cost literature due to the difficulty in measuring them. This article also highlights the understudied area of VAT compliance costs in India and the importance of exploring the compliance burden in India.

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Do Small Businesses Respond to a Change in Tax Audit Rules? Evidence from Italy

Public Finance Review ◽

10.1177/1091142116676361 ◽

2016 ◽

Vol 45 (6) ◽

pp. 792-814 ◽

Cited By ~ 1

Author(s):

Alessandro Santoro

Keyword(s):

Administrative Data ◽

Tax Evasion ◽

Small Businesses ◽

Accounting Standards ◽

Compliance Costs ◽

Tax Audit ◽

The Impact

Tax evasion by small businesses can be tackled using different approaches. A traditional one recommends to increase the probability of an audit that is perceived by small businesses. Clearly, this entails high administrative and compliance costs. Another possibility is to reduce the room for accounting manipulation by applying more stringent accounting standards. This article uses a panel of administrative data concerning 71,000 Italian small businesses observed in tax years 2005 to 2008. The aim of this article is to evaluate the impact of a reform implemented in 2006. Until 2005, small businesses adopting more stringent accounting standards were granted a special audit regime such that the probability to be audited was particularly low. This regime was repealed in 2006. It is shown that the reform increased profits and turnover, as reported by the subset of businesses that were more likely to perceive the reform as an increase in the probability of an audit.

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Costs of Compliance in Small and Medium-Sized Businesses1

American Journal of Small Business ◽

10.1177/104225878100600106 ◽

1981 ◽

Vol 6 (1) ◽

pp. 25-33

Author(s):

Paul Sommers ◽

Roland J. Cole

Keyword(s):

Small Businesses ◽

Washington State ◽

Probability Of Detection ◽

High Time ◽

Compliance Costs ◽

Low Probability ◽

Empirical Tests

This paper develops and tests a theory of compliance costs. Tension between not complying, with a low probability of detection, and complying, incurring quite high time and money costs, should result in varied choices for a sample of small businesses but high costs per dollar of revenue for those that comply. Medium-sized businesses are likely to comply because many costs are invariant with respect to size, and because they are likely to be caught if they do not comply. Empirical tests of this theory for a Washington State small- and medium-sized business sample confirm that small businesses report higher mean costs, but have greater variability across firms, than medium-sized businesses.

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Tax Compliance Costs

Public Finance Review ◽

10.1177/1091142117691603 ◽

2017 ◽

Vol 46 (5) ◽

pp. 764-792 ◽

Cited By ~ 3

Author(s):

Sebastian Eichfelder ◽

Frank Hechtner

Keyword(s):

Small Businesses ◽

Tax Compliance ◽

Framing Effects ◽

Nonresponse Bias ◽

Temporal Dimension ◽

Cost Estimates ◽

Survey Nonresponse ◽

Compliance Costs ◽

Temporal Framing ◽

Cost Measurement

As documented by empirical research, tax compliance costs are a considerable burden for households and businesses. However, cost estimates may be biased due to survey nonresponse and questionnaire framing effects. Investigating both aspects, we do not find significant evidence for a nonresponse bias. By contrast, our results indicate that framing effects regarding the temporal dimension of cost measurement (temporal framing effects) might alter cost estimates by about 39 percent downward (65 percent upward) on average and by up to 53 percent downward (respectively, 112 percent upward) for small businesses. We also test a number of cost drivers with a focus on e-government features. We do not find any evidence that the use of Belgian e-government applications in 2002 and 2004 significantly reduced compliance costs.

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Compliance Costs of Regulation for Small Business

Journal of Business Systems Governance & Ethics ◽

10.15209/jbsge.v9i2.715 ◽

2014 ◽

Vol 9 (2) ◽

Cited By ~ 2

Author(s):

Phil Lewis ◽

Alice Richardson ◽

Michael Corliss

Keyword(s):

Small Business ◽

Small Businesses ◽

Government Regulation ◽

Survey Instrument ◽

Business Owners ◽

Compliance Costs

There has been growing concern about the extent of government regulation in Australia and its impact on small business. This paper examines the results of a survey of small businesses in NSW and Victoria regarding their experiences relating to compliance with government regulation, the costs to business, and factors inhibiting performance. The paper describes the development of the survey instrument, the administration of the survey, a description of the sample, results of the quantitative part of the survey, and an overview of business owners’ comments provided by respondents.

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Annual tax compliance costs for small businesses: a survey of tax practitioners in South Africa

South African Journal of Economic and Management Sciences ◽

10.4102/sajems.v11i3.464 ◽

2012 ◽

Vol 11 (3) ◽

pp. 354-371 ◽

Cited By ~ 4

Author(s):

Sharon Smulders ◽

Madeleine Stiglingh

Keyword(s):

South Africa ◽

Empirical Study ◽

Small Businesses ◽

Income Tax ◽

Tax Compliance ◽

Value Added ◽

Baseline Measurement ◽

Compliance Costs ◽

Tax Practitioners ◽

Tax Returns

This study provides a baseline measurement for annual tax compliance costs for small businesses. An empirical study performed amongst tax practitioners to identify and measure the annual tax compliance costs for small businesses throughout South Africa revealed that R7 030 per annum is the average fee that tax practitioners charge their small business clients to ensure that their tax returns (for four key taxes – income tax, provisional tax, value added tax and employees’ tax) are prepared, completed and submitted as SARS requires. From the perspective of time and cost, preparing, completing and submitting VAT returns takes the longest and costs the most. It is evident that, overall, the compliance costs are regressive: the smaller the business, the heavier the burden.

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