Tuesday, May 1, 2012

Should Services Be Subject to Sales Tax?

For the second time in six months, groups are talking about sales taxes in Virginia. On April 27, the Thomas Jefferson Institute for Public Policy (TJIPP) released a study on restructuring the Virginia tax system, recommending expanding the current sales tax to currently exempt services.

TJIPP argues that such an expansion could allow Virginia to eliminate state income taxes on its poorest citizens and cut taxes for every citizen. The report also recommended the elimination of the Business, Professional and Occupational License (BPOL) tax, the merchants’ capital tax and the machinery and tools tax.

The majority of service exemptions from sales taxes date back to the 1960s, when services represented a smaller part of the economy. According to the TJIPP study, services currently constitute two-thirds of the economy.
In November, the Virginia Joint Legislative Audit and Review Commission (JLARC) released a study that also touched on the issue. JLARC said that taxing services would bring in approximately $3.5 billion in additional revenue. Virginia currently exempts 150 of the 168 “typical services.”
Other organizations have studied the potential taxation of services, including the Center on Budget and Policy Priorities in 2009 in its series “Dealing With Deficits: How States Can Respond.” In his article, “Expanding Sales Taxation of Services: Options and Issues,” Michael Mazerov wrote, “Most states could improve their sales taxes and their tax systems in general with some expansion of the tax base to include services. Levying sales taxes on services makes state tax systems fairer, more stable, more economically neutral, and easier to administer.”

What do you think? Would taxing services help stabilize struggling state economies?

1 comment:

  1. David E. Ives, CPAMay 15, 2012 at 1:16 PM

    The problem with allowing the Commonwealth of Virginia to levy a new sales tax on services with the idea/promise that other taxes were be reduced is that there is no guarantee that current or future legislators will live up to the promise.

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