Higher sales and excise taxes are often slapped on products deemed harmful to consumers, like cigarettes, alcohol, and most recently, marijuana. In theory, they curb consumption and generate revenue to put towards solving the problems the products create. Mexico’s soda tax seems to be doing just that: soda consumption is down and the tax generated over $1 billion in revenue in 2014 alone. Of course, support for these taxes is not universal: there is evidence that while soda taxes may reduce consumption, they don’t decrease overall sugar intake or obesity.
If sales tax can solve problems at the local, state and even national level, can it do the same on a more global scale? Environmental taxes are designed to give polluters a taste of the true cost of their activities. In theory, such green taxes can change behavior and ultimately reduce environmental harm. But do they work?
Can sales tax lead to a greener planet?
Hold it in
Agricultural practices account for nearly 10% of all greenhouse gas emissions (EPA). Soil management is the worst offender, followed by enteric fermentation—eructations and exhalations more commonly called burps and farts. We all do it; it’s just that ruminants do it more powerfully, producing more methane than the average bear because of the coarse plant material they consume.
To curb enteric fermentation, the Center for Climate and Energy Solutions has suggested cap-and-trade regulation, a tax, or income and sales tax credits. Could higher tax rates or tax incentives provide the push innovators need to solve enteric fermentation? According to the Financial Times, they just might. The director of the Cow of the Future project is working to create a healthier, unstressed, gas-free cow. Scientists at Argentina’s National Institute of Agricultural Technology have designed a gas collecting cow backpack, which captures methane before it’s released—an amazing invention, if impractical on a large scale.
The fact is, cow emissions are hard to capture or control. That’s why most tax policies are directed toward vehicle and business outputs. Here cap and trade policies and tax incentives have a shot at success.
To encourage the development and use of green technology, numerous states offer tax credits, exemptions, incentives, and rebates. Such programs range from solar panel sales and use tax exemptions to tax deductions for energy efficient commercial buildings and rebates for green residential living. States that provide such programs include but are not limited to:
Policies to encourage the purchase of vehicles that use less gas vary widely from state to state. Consumers can save thousands on the purchase of electric vehicles through credits, rebates and sales tax exemptions in Colorado, Georgia, Illinois and Texas. Other incentives include:
- California’s Clean Vehicle Rebate Project, tax rebates and credits on the purchase or lease of qualified plug-in electric vehicles
- New Jersey’s sales and use tax exemption for zero-emission vehicles (ZEVs) (partial ZEVs such as the Toyota Prius or Honda Civic Hybrid do not qualify)
- Washington‘s sales and use tax exemption for sales of certain vehicles powered exclusively or partially by a clean alternative fuel
Get off the road
If policies in the United States focus on encouraging consumers to opt for cleaner greener machines, policies in some other countries aim to reduce the number of cars on the road. For example, in an attempt to reduce congestion and pollution, India has announced the following taxes on car sales (effective immediately):
- 1% on cars less than 4 meters long with engines smaller than 1,200 cc that run on compressed natural gas, liquid petroleum gas, or petrol
- 5% on diesel cars less than 4 meters long with engines below 1,500 cc
- 4% on bigger diesel vehicles
A 1% tax on sales of luxury passenger vehicles is also taking effect. According to The Guardian, the vehicle tax is expected to generate 30bn rupees ($439 million).
It’s not easy
As Kermit the Frog well knows, it’s not easy being green. Do any of the above tax policies make a difference? Time will tell.
What is certain is that differing tax policies make sales and use tax compliance more complex and time consuming. Sales and use tax automation enables businesses to focus on doing what they do what they do best. Learn more.