Question

Why might pressures to satisfy government budget constraints give state governments incentives to seek to tax remote sales even if they were to determine that actual net revenues collected likely would be less than originally estimated?

Short answer

It occurs because the budget constraints helps in making the economy pre-prepared for worst and the best.

Step-by-step solution

Introduction

The total number of products you can afford within your present budget is referred to as a budget limitation. The range of options possible within a certain budget is depicted by a budget restriction.

The purchase of products from outside the state through mail or orders placed online is referred to as remote sales.

Government budget constraint

According to the government budget constraints, each dollar of public spending should be provided by user charges and taxes earned by the government. Thus, the total amount of government spending in the present and planned spending for the future should not be greater than the taxes it is earning in the present and expects to earn in the future.

Step 3. Explanation

Earlier, it was very rare for states to charge taxes on the remote purchase of products from outside the state by their resident consumers. The states usually determined that the cost of imposing taxes would be greater than the revenue earned. However, there is a rising trend of states charging taxes on remote sales.

One of the reasons might be that the development of E-commerce sites has significantly increased the volume of remote sales. The loss of revenue by not taxing remote sales has prompted states to charge taxes.

The pressure to cover all the spending through taxes is also a major reason for imposing taxes on remote sales because it would help in remaining within the constraints while also maintaining spending.