It’s no secret California is constantly looking for new ways to increase its revenue. This past year alone, residents have seen a call for higher soda, insurance, energy, income and property taxes. It doesn’t end there, though. State Senator Bob Hertzberg also proposed extending sales tax to include services as well.
You may think, “Well, California really needs the revenue, so maybe it’s worth it.” However, if you look at the numbers, California will end the current fiscal year with a $7.9 billion surplus, even after enacting the largest spending plan in state history, which included an increase on education, paying down debt, creating new programs for the poor and adding billions to a “rainy day” fund. The Legislative Analyst’s Office also anticipates the surplus will continue over the next several years.
About the New Bill
Like Scrooge, Sen. Hertzberg’s proposal increases taxes to literally nickel and dime residents in every means possible. Falling under Senate Bill 8 (or SB 8), the proposal would tax services like childcare, transportation, haircuts and more. The actual bill itself doesn’t include a lot of detail as to which services exactly would be included, but it does claim to raise at least $10 billion in new revenue each year. Chances are, this means a wide variety of services would fall under its umbrella.
How would extending sales tax to include services impact companies?
According to California’s state Board of Equalization, a tax on services would mean 2.5 million businesses would need to register to pay the sales tax on the services they perform. The Board specifically said it would impose a “significant hardship” on millions of small companies across the state.
Another disadvantage small businesses would face is simply that they’d need to pay the tax on more types of services because many outsource accounting and legal help (which would also likely be taxable). Larger companies are likely to afford to perform these services in-house.
Senator Hertzberg does say the bill would exempt businesses with less than $100,000 in annual gross revenue, but there are still a large number of small companies that wouldn’t fall into the exemption. Plus, there is no guarantee that if the bill passes, state legislatures wouldn’t remove the exemption in the future.
How would this bill impact Californians?
In addition to needing to pay sales tax on everyday services like haircuts, a new tax on childcare could make it even harder for two-income families struggling to make ends meet. And with nearly 9 million workers employed by small companies, it is very likely jobs would be lost due to the addition of this tax.
As you can tell, we think extending sales tax to include services is a bad idea. It will negatively impact the state’s jobs and economy and mostly impact those who can afford it the least. Plus, then people like me would also likely also be charging our clients sales tax on our consulting services! Sounds a lot like Scrooge to me!
We’ll continue to update you with news surrounding this and other updates coming out of the State Legislature. In the meantime, make sure you contact us if you have any questions about how sales tax (or any other tax issues) affects your business.
Happy holidays from everyone at Miles Consulting Group!
Miles Consulting Group, Inc. is a professional service firm in San Jose, California specializing in multi-state tax solutions. Our firm addresses state and local tax issues for our clients, including general state tax consulting, nexus reviews, tax credit and tax incentive maximization, income tax and sales/use tax planning and other special projects, including the new California Partial Manufacturer’s Exemption for Sales Tax. To learn more, contact us today at www.MilesConsultingGroup.com.
