Wider, not higher, sales tax seen as budget fix
By Judy Lin - jlin at sacbee.com
Published 12:00 am PDT Sunday, April 27, 2008
Story appeared in MAIN NEWS section, Page A1
http://www.sacbee.com/capolitics/story/892911.html
Californians are used to paying as much as 8.75 percent sales tax on
automobiles, athletic shoes and widescreen televisions.
But what about applying the same rate to carwashes, pedicures and
movie tickets?
As the state budget gap widens, talk again has turned to the sales tax
=96 not raising the rate, but the possibility of applying it to a range
of services that other states tax routinely.
Last week, the Democratic chair of the Board of Equalization, Judy
Chu, sent a letter to legislative leaders suggesting that broadening
the sales tax to some services often taxed outside California could
net $2.7 billion for the ailing state budget.
California could practically wipe out next year's projected deficit of
$10 billion if it adopted policies similar to those in New York, Texas
and Florida, Chu wrote.
"I think everything has to be on the table," said Assemblyman John
Laird, D-Santa Cruz, chair of the Assembly Budget Committee. "And we
hope everybody looks at every conceivable option."
Senate President Pro Tem Don Perata has suggested imposing the sales
tax on services for things such as consultants, dry cleaners, lawyers
and technology sup****t.
But while Perata and Assembly Speaker Fabian N=FA=F1ez push for new
revenues, they continue to face resistance from Republican lawmakers
and taxpayer advocates.
"We're opposing all tax increases as unnecessary," said Jon Coupal,
president of the Howard Jarvis Taxpayers Association. "Businesses and
families live within their means. It's time to have the state do the
same."
Some Republicans, including Gov. Arnold Schwarzenegger, are open to
the idea, but as a way to make the tax system more fair, not
necessarily to raise more money.
Harley Duncan, executive director of the Federation of Tax
Administrators, said over time, many states have expanded their sales
tax to include admissions for concerts, s****ting events and movies.
Others have turned to taxing services on tangible goods, such as auto
repair, plumbing, and painting.
New York taxes baseball tickets to Yankees games, Pennsylvania taxes
car repair services, and Texas taxes member****p fees at health clubs.
According to Duncan's group, 37 states tax professional s****ting
events, 22 states tax repair services on motor vehicles, and 21 states
tax health club dues.
Other popular services taxed by other states include landscaping,
diaper services and taxidermy.
In fact, three states =96 South Dakota, Hawaii and New Mexico =96 have
moved to a broad system that taxes all goods and services.
California hasn't tinkered with its tax code since the sales and use
taxes were created in the 1930s to offset declining property tax
revenues as a result of the Depression. Today, the tax continues to
focus on the sale of physical goods, such as clothing, furniture and
automobiles.
Chu said broadening the sales tax makes the most sense because it's a
more stable source of revenue than the income tax, which varies widely
with the stock earnings of the state's high-income earners.
She suggested change would also bring consistency to existing tax
policies.
"We tax exercise equipment, but we don't tax health club services. We
tax movie rentals, but we don't tax movie admissions," Chu said.
The idea of a broader sales tax isn't popular just with Democrats. It
also appeals to some conservative thinkers.
In general, items or services bought by a household should be taxed,
with some exceptions like doctor's office visits, said Charles McLure,
an economist who worked in the Treasury Department under the Reagan
administration and now is a senior fellow at the Hoover Institute at
Stanford University.
"Obviously as the economy has evolved, the ****tion of what people buy
and consume has changed. The tax base has shrunk," McLure said. "To
restore sanity to the tax base, it should be expanded to everything
the consumer consumes."
Assemblyman Roger Niello, R-Fair Oaks, agreed the state should review
its tax structure as a way of stabilizing revenues =96 but he said any
policy change to the sales tax should be accompanied by a lower rate
to make it revenue-neutral.
"The principle of taxing at the lowest rate to the broadest base
accomplishes two things: it minimizes volatility and imposes the least
burden," Niello said.
Schwarzenegger, too, has called for overhauling the state's tax system
in an effort to reflect the 21st-century economy.
That doesn't necessarily mean more revenue for the state,
Schwarzenegger has said: "Just maybe make it revenue-neutral =85 just a
better way of taxing."
But while the governor and some lawmakers endorse the concept of a
broad sales tax, some policy analysts question if it can be
implemented fairly.
Loren Kaye, president of the California Foundation for Commerce and
Education, a think tank funded by the California Chamber of Commerce,
said politically powerful professions such as lawyers would likely
seek exemptions.
"It gets really dicey when you're looking at specific businesses,"
Kaye said. "For the amount of trouble you have to go through, you wind
up with hairdressers and lawn services. It just seems hardly
worthwhile."
Lawmakers may also face public backlash.
In Michigan, a sales tax on service business was repealed after
businesses complained. Elected officials replaced the tax with a
surcharge on a new business tax. Now both the surcharge and business
tax are coming under fire.
Customers would cry and groan, particularly in a tight economy, said
Eric Mead, owner of Japanese Im****ts in Sacramento, which has been in
business for 35 years.
"I would have a hard time handing that to a customer," Mead said. "I
don't think they'd care for it too much."
J.C. Allen, owner of midtown's Mosaic Salon, said she opposes
broadening the sales tax to haircuts, spa treatments and waxing
because business is already down.
"Instead of getting their hair cuts every four to six weeks, they go
for six to eight weeks," Allen said.
One of Mosaic's clients, Bernadette Barnes, a 35-year-old marketing
specialist, said she would accept taxes on her $20 brow waxes, but
she'd want a spending cap so lawmakers don't overspend in the future.
"It would not change my salon habits," she said. "But I'd be very
frustrated in doing it if the deficit didn't start going down."
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