What ‘Economic Incidence’ of Business Taxes Looks Like

January 18, 2007

Download Texas Gross Margin Tax Incidence

Probably the most common misunderstanding about taxes is the view that business taxes are paid by companies, rather than individuals. But thanks to an email from one Texas resident, we have yet another illustration of how people clearly bear what economists call the “economic incidence” of taxes, even when companies are legally responsible for remitting tax payments.

On January 1st a new 1 percent tax on business gross receipts went into effect in Texas. But as the details of the telephone bill below illustrate, the tax is clearly being passed forward to consumers by at least one company. Here’s the email:

“Sprint has informed its Texas customers that as of 1/1/07 their bills will be increased by 1% as a direct pass-thru to cover the new Texas Gross Margins Tax. The Texas legislature’s attempt to increase tax on business obviously did not work…”

And here’s the evidence sent as an attachment to the email:

“Texas Margin Fee Reimbursement
Effective January 2007, Sprint will begin charging Texas customers a 1% Texas Margin Fee Reimbursement in the Additional Sprint Charges section of the invoice. For details on fees, see the Subscriber Agreement or visit nextel.com/en/support/billing.shtml.”


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