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This issue of Review of Applied Urban Research features "Omaha-Council Bluffs Tax Border Issue."

Recently governmental administrators and politicians of Omaha have voiced concern over the sales losses that might result because of Iowa's exemption of food purchases from the retail sales tax--a measure which took effect July 1, 1974.1

Generally, it is felt that a sales tax rate differential between two border cities will influence sales as favorable rate differentials are reduced or unfavorable rate differentials are created or widened. However, the magnitude of the problem will depend on many factors, e.g., location of major shopping facilities, distance, convenience, amount of purchases, size of tax rate differential and so forth. It would generally be expected that the problem would be greatest when the area's principal shopping center is across the state line in the lower tax area and the tax rate differential is large.

To make informed decisions there must be some idea of the sales tax loss that might be expected from the food tax rate differential that now exists {3.5 percent). Ultimately, the need for sales tax revenue must be weighed against its loss while considering objections to other revenue sources. 2

It is the purpose of this study to determine what immediate effect, if any, tax exemption of food in Iowa is having on consumer buying habits--i.e., to determine if consumers are influenced by the tax rate differential between Omaha and Council Bluffs.