California currently imposes
a retail sales tax on all tangible items, except those specifically exempted
by law. Services are generally not subject to the sales tax. In a 1996 update
of a national study by the
Federation of Tax Administrators, California taxed only thirteen services. Only
four states taxed fewer services than California.
California has considered
extending the sales tax on services in the past, and the matter is currently in public debate as the state grapples with a severe fiscal crisis. The following reports and articles provide analysis and commentary.
- California Commission on Tax Policy in the New Economy.
"Sales Tax," in Options for Revising the California Tax System. Sacramento: The Commission, June 15 2003, p. 7-16.
-
The second interim report of the commission, established in 2002 and chaired by William J. Rosentdahl. The final report is due by December 31, 2003. Outlines the issues involved in expanding the sales tax on services, but does not take a position. Includes a table, "Proposed Taxation of 36 Selected Services," presented to the commission by Assemblymembers John Dutra and Jackie Goldberg.
- Doerr, David R.
"Notion of Expanding the State Sales Tax Does a Disservice to Us All," Cal-Tax Digest, Jan. 2003.
-
Contends that a "sales tax on services flunks the good-government test on every possible criterion." Doerr calls the idea discriminatory, bad for the economy, and an "administrative nightmare."
- Levine, Robert A.
Sales Tax on Services? Not So Fast. (Op-Eds by RAND Staff). Santa Monica, RAND Corp., 2003.
- Asserts that a broad expansion of the sales tax on services is not politically feasible in California. The op-ed appeared in the January 30, 2003 Orange County Register.
- California. Legislature.
Assembly. Committee on Revenue and Taxation.
The California Sales and Use tax: an Overview, a Look at Exemptions, and
an Analysis of the Taxation of Services. Sacramento, CA: Assembly
Publications Office, 1983. 175 p.
- Includes a pro and con discussion of the issue, as well as State Board of Equalization estimates of sales tax revenues on selected services.
For general background on
current sales tax provisions in California see:
- "Sales and Use Tax."
In: 2000 Revenue and Taxation Reference Book. Sacramento:
Assembly Revenue and Taxation Committee, 2000, p. 75-85.
- "Sales and Use Tax."
In: California's
Tax System: a Primer. Sacramento: Legislative Analyst's Office,
2001, p. 27-34.
- Sales Taxation
of Services: 1996 Update. Washington, D.C.:
Federation of Tax Administrators, 1996.
- In three parts: 1)
Introductory and overview essay on general trends in the taxation of services
as well as the taxation of selected types of services; includes a 50-state
chart of the number of services each state taxes in each of eight broad
categories; 2) Detailed survey data on the manner in which each state
taxes the 164 listed services; and 3) Footnotes that amplify each state's
response to the listing of services.
- Litvan,
Laura M.
"More Sales Taxes on Services?" Nation's Business,
v. 82, no. 1 (Jan. 1994), p. 28R.
- "Though Florida and
Massachusetts backed away from such leveies, other states are gradually
tapping into this area of business growth."
- Graeser,
Laird; Maury, Allen.
"Sales Tax on Services: State Trends." In: Fox, William
F., ed. Sales Taxation: Critical Issues in Policy and Administration.
Westport, Conn: Greenwood, Praeger in cooeration with the National Tax Association,
1992, p. 77-102.
- James, John
P.
"Sales Tax on Services: A Tax Administrator's Perspective."
In: Fox, William F., ed. Sales taxation: Critical Issues in Policy and
Administration. Westport, Conn: Greenwood, Praeger in cooperation with
the National Tax Association, 1992, p. 63-75.
- Merriman,
David F., Skidmore, Mark.
"Did Distortionary Sales Taxation Contribute to the Growth of the
Service Sector?" National Tax Journal, v. 53, no. 1 (Mar,
2000), p.125-42
- From the authors'
abstract: "We hypothesize that increased sales taxation has played
a role in the growth of the service sector, because states typically exempt
sales of services from the sales tax unless explicitly enumerated, while
final purchases of goods are taxed unless explicitly exempted. Our empirical
results suggest that increased sales taxation is responsible for as much
as one-third of the decline in the retail sector and one-eighth of the
increase in the service sector during the 1982-92 period."
- Baum, Donald
N.
"Economic Effects of Including Services in the Sales Tax Base: An
Applied General Equilibrium Analysis," Public Finance Quarterly,
v. 19, no. 2 (Apr 1991), p.166-192.
- From the author's
abstract: "An applied general equilibrium model is used to determine the
effects of including additional services in the sales tax base."
- Quick,
Perry D.; McKee, Michael J.
"Sales Tax on Services: Revenue or Reform?" National Tax
Journal, v. 41, no, 3 (Sept. 1988), p. 395-409.
- Takes the view that
"State legislators should consider the introduction of a broadly based
tax on the consumption of services not as a major source of new revenues,
but rather as a means to reform their entire sales tax structure." With
a comment by Billy C. Hamilton (p. 411-413) focusing on a proposal
to expand the sales tax on services in Texas.
Much of the literature focues
on Florida's brief experiment with expanding the sales tax on services in 1987,
and Massachusetts' even briefer experiment in 1990.
- Sales
Taxes on Services. Oklahoma League
of Economists, 2000.
- Oklahoma currently
applies the sales tax to a small number of services. This study
examines issues in increasing the number of taxed services.
- Bruskin,
Samuel B.; Parker, Kathleen King.
"State Sales Taxes on Services: Massachusetts as a Case Study,"
Tax Lawyer, v. 45, no. 1 (Fall 1991), p. 49-67.
- In July 1990 Massachusetts
enacted and then repealed a measure to extend its sales tax to services
provided to businesses. The article examines the Massachusetts experience,
and reviews issues that other states might weigh in considering such a
tax.
- Siegfried,
John J.; Smith, Paul A.
"The distributional effects of a sales tax on services,"
National tax journal, v. 44, no. 1 (Mar. 1991), p. 41-53.
- From the authors'
abstract: "The short-lived 1987 sales tax on services in Florida
is used to illustrate the distributional effect of a sales tax levied
on both intermediate and final consumption products. ... Florida's temporary
5 percent sales tax on services was slightly less regressive than the
1 percent boost in the general sales tax on commodities that replaced
it."
- Hellerstein,
Walter.
"Florida's Sales Tax on Services," National Tax Journal,
v. 41, no. 1 (Mar. 1988), p. 1-18.
- From the author's
abstract: "During its 1987 session, the Florida legislature enacted
a sales and use tax on a broad range of services consumed in the state.
Because the tax systematically sought to tax services that were
performed outside the state but used in Florida (including national advertising),
the levey triggered an enornous storm of protest. ... This article traces
the historical development of Florida's sales tax on services, examines
its design and operation, explores the policy questions that the tax raised,
considers the legal challenges to the levy's validity, and describes the
events that led to its ulimate repeal."
- Gold, Steven
David.
"Florida's Sales Tax on Services : Aberration or Innovation?"
State legislatures, v. 14, no. 1 (Jan. 1988), p. 10-13.
- Marks, Marilyn.
"Florida Ends Tax on Services, Raises Sales Tax," Governing,
v. 1, no. 4 (Jan. 1988), p. 57.
- Reilly,
Thomas J.
"Manufacturers' Problems with Florida's Sales Tax on Services,"
Tax Executive, v. 40, no. 2 (Winter 1988), p. 161-167.
