Paul L. Caron
Dean




Monday, December 21, 2020

Why States Should Consider Expanding Sales Taxes To Services, Part 1

Gladriel Shobe (BYU), Grace Stephenson Nielsen (J.D. 2021, BYU), Darien Shanske (UC-Davis) & David Gamage (Indiana), Why States Should Consider Expanding Sales Taxes to Services, Part 1, 98 Tax Notes State 1349 (Dec. 21, 2020):

Tax Notes StateStates are facing a severe budget crisis as a result of the coronavirus pandemic. And with the federal government unlikely to pass a relief bill to address those state budget issues, states will need to play a significant role in making up revenue shortfalls.

This is the first in a three-part series, which is a contribution to Project SAFE: State Action in Fiscal Emergencies. This essay will lay out the general case for why states should consider expanding their sales tax bases to more services as a response to the COVID-19 crisis. The follow-ups will discuss further mechanics and details of how best to accomplish this goal.

In particular, the second essay will argue that there are low-hanging reforms that could raise substantial revenue, would represent good tax policy, and might be politically possible even during the current crisis. In the third essay we will then introduce reforms to help with the critical problem of tax pyramiding.

https://taxprof.typepad.com/taxprof_blog/2020/12/why-states-should-consider-expanding-sales-taxes-to-services.html

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Comments

There's no way lawn mowers only have a useful life of 4 years. Who wrote that???

Posted by: Anon | Jan 1, 2021 1:42:38 PM

From the paper: Second, a tax on services could help eliminate the current arbitrary distinctions between closely related consumer goods and services, which may distort consumer choices by artificially making service transactions less expensive.35 For example, if purchasing a lawn mower with a useful life of four years and hiring a lawn care service over that same period each cost $400 before sales tax, and only the lawn mower purchase is taxable, the fact that the latter is taxed makes it more expensive relative to the cost of the lawn care service.
A totally, ridiculous assertion which ignores the facts. The authors ignored consumer behavior in the analysis. Most consumer’s hire landscaper’s for reasons other than just the expense vs. of hiring a lawn service vs. do-it-yourself. Consumers recognize that making a long-term investment in a mower is not comparable to hiring a professional, sales tax aside. The worst part is the loss of a significant tax base in corporate enterprise if surrounding states do not tax services. The applies to professionals who do pay tax on materials and supplies – most will be forced to flee the state due to erosion of profitability. Total nonsense that further confirms how out of touch academia is to real life.

Posted by: DSO | Jan 1, 2021 10:48:22 AM

States should try reducing government pensions first.

Posted by: Actual Lawyer | Dec 21, 2020 6:59:28 PM

Just in case anyone is wondering what comes after this...

Part 2: Why States Should Exempt Legal Services From Sales Tax

Posted by: Anon | Dec 21, 2020 6:45:41 PM

TLDR:
sO bLuE sTaTeS cAn GeT mOrE tAx ReVeNuE aNd SpEnD mOrE

Posted by: Anon | Dec 21, 2020 6:43:35 PM

From the paper: "To limit the harmful consequences of cuts to education, healthcare, and other important programs, states should rely more heavily on tax increases during this recession than they have in the past."

This is a fascinating approach, given that it was state and local governments that shut down large sections of the private sector, by choice and by force, thereby essentially cutting their own source of tax revenue. And now they want to increase taxes on everyone still left standing, and not reduce their own budgets like literally everyone else who was affected by these state-forced shutdowns have had to do.

Charming...

Posted by: MM Classic | Dec 21, 2020 4:47:31 PM

Outstanding logic. Increase tax liability to a depressed population. Much better to reduce spending.

Posted by: Ed | Dec 21, 2020 8:47:44 AM