Stores Cheating on Taxes May Deprive Low Income Communities of Political Clout

If local stores pay too little in taxes, the local community can be politically weakened. If the community also suffers from poverty, the tax shortfall can cause disproportionate harm to the people who live there. This is particularly concerning when the stores’ owners don’t live locally and therefore spend less locally.

A Little Problem of No Receipts

I go to the library one day and pay a fine for something overdue. It’s about 2–3 dollars. I pay cash and the cashier rings it up and puts it in the cash register. If change was due, she gives it to me. She’s a young Black girl, maybe of high school age.

I ask for a receipt. She doesn’t just say no. She scrunches up her face, like this is bizarre. I try several ways of asking. I suggest she take a pad of library paper, write the amount paid, and stamp it with a library stamp. Nothing doing, except she scrunches her face again. There’s a line of people behind me. I give up and go to a librarian at an information counter. He tells me they don’t usually issue them but he gives me one on my word. (The library routinely issues receipts now, but the denial was years ago.)

Where I lived was largely white. Fast forward a bunch of years: I move to another neighborhood. My building is small, but everyone in it is Black, including the owner. On my block, I see two white families and probably all other families are Black. Around the corner is a busy commercial street with a subway stop a few blocks up. Almost everyone walking on that street is Black. That includes people shopping in the many stores.

But the people behind the store counters who seem to be owners or top managers are not Black. Maybe they’re Latin or Arab. Now that I’ve moved there, I buy some things locally. I’m white. I discover something over the first few weeks. The first time I buy, say, a quart of milk in a particular store, a receipt is issued like it’s routine. But by only the second or third time in the same store, it’s not issued, unless I ask for it. The change is correct and whatever I buy is what it should be, so I’m not returning it. And there are exceptions, but they appear to be major chains, like the national fast food chain or the supermarket chain. The big chains issue receipts all the time. The chains likely have a reason all their own: they buy centrally and want all of the local sales revenue accounted for, which is why some reward customers with free products for reporting failures to issue receipts. If sales seem too low, they’re willing to fire local managers. This hardly applies to independent stores.

What I’m learning is that if the owner has hands on the cash register and likely is responsible for paying taxes, they likely would rather underreport income. If they’ve seen me a few times and I haven’t complained, the chances are that I’m not a government inspector and the owner can get away with not issuing a receipt and therefore with not ringing up the sale or reporting it. They’d have to report some sales, perhaps more than enough to cover rent, utilities, payroll, and wholesale purchases, but they might get away with not reporting much above that.

Black neighborhoods tend, on average, to have lower per capita incomes and therefore residents have bigger things to worry about than whether stores issue receipts, especially if stores are still willing to honor refunds to customers they know.

If, in Black neighborhoods, most stores don’t issue receipts and the chains doing so make the chains look like outliers, that could explain the young Black library cashier reacting like my request for a receipt was out of this world.

Since most people in the neighborhood were Black but store owners were not, probably the store owners live somewhere else. That’s their right and I’m happy for people from around the world serving customers. Still, what matters here is that their spending and their homes, both of which generate tax revenue, are mainly somewhere else (except for stores’ needs). Thus, the tax revenue averaged per resident in a community around the store is less than in other neighborhoods, because of lower incomes to spend and be taxed but also because of underreporting of what revenue does come into stores.

As a result, in a city or larger jurisdiction, the stores in this district are generating even less tax revenue per person than those in wealthier communities do. It’s lower; and that’s likely because, in part, many store owners are violating the tax law and enforcement would be expensive, so the law is not being much enforced.

Not that more affluent stores don’t violate laws. Other information says they likely do, but it may involve different laws. The political effects may differ. This is about underrepresentation of communities coping with poverty.

Money is Tough and Politics is Embarrassingly Bad

The political effect is likely substantial. All communities need government services and all communities use them. Those services cost money. The money initially should come from the communities being served. But, where taxes fall short in low-income communities, some of the money must come through taxes from wealthier communities, and sometimes they agree, but sometimes they resist. The more affluent communities tend to have more political power, in total or measured per capita, and so, if they resist, they can usually win. So, when low-income communities don’t get what they need, store owners underreporting income and paying legally too little in taxes are shortchanging the communities that give them their livings.

On the Other Hand

An opposing argument may be that in order to pay the full taxes they’d have to raise prices or offer less product choice. Raising prices would reduce sales or increase poverty, or both. Lowering product choice so that the higher per-item sales volume would keep prices level would enlarge the margin so the full taxes could be paid, but it could also mean that customers’ needs are less likely to be met. If enforcement is uneven, that could drive business to stores not paying the full taxes. Therefore, enforcement has to be across the board. If profits suffer, many store owners would no longer find those communities worthwhile as investment venues, building owners would have to lower storefront rents in order to fill them, and building owners taxes would go down.

If this opposing argument is right, then no short-term solution may exist. We can’t subsidize the stores or lower their tax rate because of their neighborhood without enforcement going up so that customers routinely demand and get receipts, and that might be too difficult to sustain over a long time without spending more money on public education, merchant education, and merchant enforcement than the marginal tax revenue could support. But, without data, I’m not sure this opposing argument is right.

Solutions Are Tough

Raising the political power may require tax law enforcement. If receipts must to be issued, undercover agents who do not blend in the neighborhood or whose purchases would be consistent but somewhat distinct, and are not seen driving, should make multiple visits until receipts are not forthcoming, which may occur in just a few visits.

Comparing tax revenue by district might be a helpful proxy for comparing political power between districts. May we now come closer to equality.