States eye services taxes for first time

posted at 10:55 am on April 1, 2010 by Ed Morrissey

States have applied sales taxes to almost every good sold within them, although some (like Minnesota) don’t tax staples like milk and clothing.  In general, they have avoided taxing services, in part because of the lack of physical exchange as a focus point for the transaction.  ABC News reports that desperate times are apparently calling for desperate measures, as states look to right their ledgers:

Cash-strapped states across the country are looking to their cash-strapped residents for even more money — by taxing services they buy, not just goods. Everything from car repairs and dry cleaning to personal training and party clowns are being targeted for new taxes.

Personal Trainer Kelly Garner is outraged, telling ABC News, “another tax is not what we need right now.” State budget officers disagree.

The new taxes are hitting citizens of states across the country. Hawaii, New Mexico, Washington, South Dakota and Delaware already tax a number of services. Other states are quickly following their lead.

Nebraska lawmakers are considering new taxes on everything from shoe shines to farm equipment repairs. In Kentucky, the state is considering taking a cut of lawn services and limousine rides. Maine could decide to tax the fun out of performers like clowns and jugglers. And, in Pennsylvania, accountants and even plumbers could have their labor visited by the tax man for the first time ever.

Consumers do two-thirds of their spending on services, and with massive budget deficits, state governments say they can’t afford not to consider another source of revenue.

Let’s get the obvious out of the way, which is this: states need to start looking for reductions to make in their own spending, not find ways to suck even more out of the economy.  The service sector has already been hammered by the Great Recession.  Sticking a new load of sales taxes on top of it will only slow its recovery, while pulling capital out of the market will make future expansion less likely.

With that being said, what is the rationale for applying sales taxes to goods but not services?  Is it an issue of difficulty?  Retail systems now track goods throughout the distribution chain with high degrees of accuracy (in part because of tax regulations), which makes it easy for government to take their bite.  The same cannot be said for massages, lawns being mowed, rubber balls being juggled, and so on.

In fact, the traditional manner in which that got taxed was through income.  Clowns don’t sell goods, but they pay tax on their income at the end of the year.  So do lawn servicers, personal trainers, and masseuses.  If states decided to impose sales tax, it wouldn’t be directly a double taxation, as the customer pays the sales tax, but it would make customers less likely to buy — and providers would have to keep prices a little lower as a result of the government wetting its beak.


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This is causing an explosion in the underground economy – everyone who can do business in cash is doing so in order avoid claiming income. Unintended consequences.

Sporty1946 on April 1, 2010 at 12:59 PM

Laffer curve. But as the President informed us, raising taxes isn’t about raising revenue anyway, it’s about fairness.

29Victor on April 1, 2010 at 1:11 PM

This is why I fled the Puget Sound area for WY.
The people (not all) are rediculous there.

Badger40 on April 1, 2010 at 1:11 PM

But the trees are so pretty.

29Victor on April 1, 2010 at 1:12 PM

“We got Barack Obama”

dmann on April 1, 2010 at 1:14 PM

Is Hot Air a service?

Dhuka on April 1, 2010 at 1:28 PM

29Victor on April 1, 2010 at 1:11 PM

Is it fair to me that I have to live with a crappy president and a Congress of thieves?

NoDonkey on April 1, 2010 at 1:29 PM

But the trees are so pretty.

29Victor on April 1, 2010 at 1:12 PM

Especially when you cut them down & make them into wood products! LOL!
That is what I did for cash while going to college there.
I did yard work & residential logging w/ my ex.
We made a LOT of $$ cutting down trees for rich people.
I do have to admit, I miss W. WA. I loved backpacking & hiking & fishing.
ND is definitely a lot different.
But you can’t even hike in the mountains there anymore without paying for a parking permit to park at a trailhead!
It’s insane over there.

Badger40 on April 1, 2010 at 1:34 PM

Service providers would also be impressed into service as tax collectors. The human equivalent of eminent domain.

cheeflo on April 1, 2010 at 1:40 PM

Yet another reason I’m thankful for Gov. Daniels – no tax increases yet.

lonesome_pine on April 1, 2010 at 12:41 PM

Not quite true. He raised sales tax from 6 to 7% in exchange for property tax cuts.

zmdavid on April 1, 2010 at 1:40 PM

Just a quick comment about a value added tax.
Many years ago I worked for a furniture company. We decided to expand to Canada.
Cost us thousands and thousands of dollars for reprogramming, invoiceing and accounting for the VAT. Unintended consequences, always.

riverrat10k on April 1, 2010 at 1:55 PM

Just about everything you buy anymore has gone up. I tend to buy the same items over and over and I see things in one store that used to be 99 cents the next week are $1.49. Over the past few months I have seen one item at WalMart go from $2.00 to $2.18 to $2.35. These aren’t small increases when you consider you’re buying things from the same paycheck (which hasn’t gone up in two years). If they add taxes to too much more you’ll come to a point where you have to choose between getting a haircut or buying a gallon of milk. Why can’t they just reign in their expenses instead of raiding our pockets again?

scalleywag on April 1, 2010 at 1:56 PM

I notice that lawyers were absent from the list of services to be taxed.

agmartin on April 1, 2010 at 1:56 PM

agmartin on April 1, 2010 at 1:56 PM

Heh.

Badger40 on April 1, 2010 at 1:59 PM

I’m fine with it as long as they tax Public Service as well. As long as congresscritters, state representatives, mayors, governors, city council members, POTUS, pay an extra tax for the service they provide, it’s ok by me.

PatMac on April 1, 2010 at 2:01 PM

What PatMac said!!

Second that!!

ajacksonian on April 1, 2010 at 2:44 PM

I have a great idea.Let’s have the government just provide ALL services.Gov’t clowns,mechanics,plumbers,lawn care,health care..oops we already have that.
Oh,Crazy Nancy and Dingy Harry thought of it first.
Shoot,now I’m going to have to pay tax on the government lawyer who defends me when Nan and Harry sue me for stealing their idea.

DDT on April 1, 2010 at 2:46 PM

Do they need to impose these taxes? In Washington State, the budget deficit seems to be very similar to the increase in spending over last year. Had they frozen spending, no (or drastically lower) deficit and no need to impose higher/new taxes. As it is, they are looking at about a billion in new taxes and fees, including taxes on services and an increase in the B&O tax – a tax on the gross receipts of businesses. Oh, the budget is 30-35% higher than it was only about four or five years ago.

SouthernRoots on April 1, 2010 at 2:47 PM

I’m fine with it as long as they tax Public Service as well. As long as congresscritters, state representatives, mayors, governors, city council members, POTUS, pay an extra tax for the service they provide, it’s ok by me.

PatMac on April 1, 2010 at 2:01 PM

Unclear on the concept? The service providers don’t pay the tax — the consumer does. And Congress never includes itself in the laws they cook up.

cheeflo on April 1, 2010 at 2:51 PM

One of the problems Michigan has/had is that it doesn’t tax services, so manufacturers end up bearing more and more of the tax burden.

Jimbo3 on April 1, 2010 at 3:18 PM

Is Hot Air a service?

Dhuka on April 1, 2010 at 1:28 PM

I would think so. Everything you read (about the chicanery from the DEMS) is taxing our mental health anyway!

OneConservative on April 1, 2010 at 6:41 PM

I’m fine with it as long as they tax Public Service as well. As long as congresscritters, state representatives, mayors, governors, city council members, POTUS, pay an extra tax for the service they provide, it’s ok by me.

PatMac on April 1, 2010 at 2:01 PM
Unclear on the concept? The service providers don’t pay the tax — the consumer does. And Congress never includes itself in the laws they cook up.

cheeflo on April 1, 2010 at 2:51 PM

I’m wasting my time as this thread’s been dead for hours but obviously you must be missing the sarcasm in my post. You’re reading it a little too literaly.

PatMac on April 1, 2010 at 11:48 PM

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