Empirical evidence of practical considerations in local government tax portfolio composition: consequences of SPLOST taxes

Purpose The purpose of this study is to explore and explain, through practical considerations, the ever-increasing presence of local option sales taxes and “special purpose” local option sales taxes (SPLOST) in the composition of the tax portfolio of local governments. Design/methodology/approach This research is designed as a case study of county-level fiscal trends in Washington counties between 1990 and 2018. Data were collected for all 39 Washington counties for 29 years in three domains: revenue, crime and society. Observations were fitted to longitudinal models for tests of cointegration or trend, or to cross-sectional regression models for tests of predictive quality. Findings This study shows that the stated “special purpose” does not influence a county’s decision to impose a SPLOST. Furthermore, this study finds that indicators of educational attainment, income, poverty, unemployment and rural areas are the largest predictors of a county’s propensity to change the composition of its revenue portfolio in favor of the sales tax. Originality/value To the best of the author’s knowledge, this is the first study to explore whether indicators of a stated “special purpose” are statistically related to a county’s propensity to adopt a particular SPLOST. This study concludes that a county’s decision to adopt a SPLOST does not depend on the stated “special purpose.” In addition, it shows that urbanized counties with higher per capita income and education levels, but lower unemployment and poverty, can predictably import sales tax revenue from neighboring jurisdictions. This is a significant finding as it may explain why SPLOST is gaining popularity.