Nothing makes Texas and Arizona business leaders smile
more than the ongoing (and preposterous) ideas that come out of Sacramento.
Years and years of the Legislature’s disregard for taxpayers and disdain for people who
dare to be successful has led to California’s status as one of the highest taxed states in the
nation, and its embarrassing title as the worst state
in which to own a business.
That’s why more than a few businesses are saying hasta la
vista to California and hello to Dallas, or Houston,
But believe it or not, some political leaders want
to tax the people even more.
A perennial favorite idea that floats around the halls
of the Capitol is a scheme to create a sales tax on
services such as haircuts, veterinary visits, taxi
rides, concerts, bowling – you name it. If it’s a service, it could become subjected to taxation.
This plan is great for U-Haul’s “one-way ticket out of California plan,” but bad for everyone else.
Budget negotiations should never go near this bad plan.
Here are seven reasons why:
Creating a sales tax on services ignores the fact that
many services can be performed out of state. For example,
a software company in California can do the same programming
in neighboring states and without the extra bookkeeping
burden. The same holds true for graphic artists, web
designers, architectural drafters, and so on.
Consumers would seek these services from out-of-state vendors, which kill jobs in our state, and people
who provide these services would consider moving out
of state, which is another form of job killing.
For brick and mortar operations that can’t move out of state, like barbershops, nail salons
and taxi drivers, the increased cost will affect the
bottom line of their already thin margins. In the competitive
environment that is commerce and business, smaller
companies may not want to pass the extra expense of
service tax onto their consumers.
Small business would be at a competitive disadvantage
compared to large outfits. Smaller businesses often
use outside providers such as accountants or computer
programmers for many services and would have to pay
taxes on these services. A large business can perform
these activities in-house to avoid the taxes.
The incentives and rewards of operating in the underground
economy will become more appealing to unscrupulous
service businesses seeking to avoid taxation and gain
an advantage over law-abiding competitors.
Like sales tax or Social Security contributions, taxing
services is a regressive tax that will pinch the pockets
of low-income families who end up paying a higher percentage
of their net income than households earning middle- to upper-income class wages.
Some taxpayers who provide personal services including
gardeners, babysitters, music teachers and financial
advisors could be subject to double taxation by being
requited to pay both sales tax and income tax on the
California has an opportunity to learn from other states,
such as Florida and Massachusetts, which have created
new sales tax for services only to repeal them for
the reasons listed above.
Michigan and Maryland enacted a similar tax on services
only to rescind the laws before they even became effective.
These states understood that this tax would not have
the intended result of additional revenue to the general
fund, and likely would lead to greater confusion on
the part of the taxpayer.
These reasons all lead to the same result: Job loss. At a time when our state unemployment rate
is hovering in the Depression-era rate of 13 percent, the idea to tax services would continue California’s joblessness free fall.
Thus, if this idea to tax services were ever to become
law, watch households retreat from spending discretionary
dollars on things like bowling on Saturday night and
pedicures before the prom.
This too will lead to further job loss.
Breaking the backs of small business and struggling
families is not exactly a smart way to stimulate the