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Adding sales tax to services bad for Californians

California taxpayers are some of the highest-taxed individuals in the nation. It has been said so many times by so many people, that I am starting to think those who are supposed to be leading California have to be sticking their fingers in their ears and purposely not hearing. We can’t take much more; and just when you think there is nothing left to tax, Sacramento, of course, finds it.

State Sen. Bob Hertzberg has a plan. To raise $10 billion in additional revenue, he has proposed expanding the sales and use tax to apply to services. Senate Bill 8, otherwise known as the Upward Mobility Act, would start to tax services at a yet-to-be-decided percentage. Health care and education services would be exempted, as would small businesses with under $100,000 in gross sales. At least your neighborhood babysitter would not have to calculate and collect a tax for watching your children while you take in a movie.

The monies collected would go to K-14 education, the University of California and California State University systems and local government. To offset the burden of this tax, there would be a new earned income tax credit for low-income families. However, there is no word on how the burden to middle-class families will be alleviated.

The state Board of Equalization has issued a study that estimates the potential revenue derived from taxing services could hit $122 billion. Yes, that is billion with a “B.” Total 2015-16 fiscal year general fund revenue is estimated at $115 billion. You could, in theory, do away with every other tax in California and still raise more money with just the “Upward Mobility Act.” BOE Vice Chairman George Runner has stated, “The size and scope of California’s service-related industry is mind-blowingly large. The last thing overtaxed Californians need is another tax. These numbers are dangerous in the hands of legislators who want to raise taxes.”

Orange County’s business and professional service sector accounts for our largest employment base according to the Orange County Business Council. At over 250,000 jobs, business and professional services are 18 percent of the county’s total payroll employment. OCBC also ranks Orange County second in the nation for high-tech job clusters, which include software, information technology and green-tech jobs. Large corporations headquartered in Orange County that provide global services are not going to stay if those services are now going to be taxed.

But even if we want to ignore how this new tax will affect the downward spiraling business climate in California, think about how it will hit individual taxpayers. Make a list of services you use on a regular basis, and then add 8.42 percent, the statewide sales tax average. Haircuts, dry cleaning, car repair, car washes, entertainment, day care, belonging to a fitness center, getting your nails done, cleaning services, landscaping – all of these services could be taxed.

Sen. Hertzberg does make a good point when he states that our tax system has failed to keep up with the times. Personal income tax, which has major revenue swings each year, now accounts for over 60 percent of the general fund. California relies on only 1 percent of taxpayers for 50 percent of the total state income. The top 10 percent covers 80 percent. A conversation is needed to work toward a more stable revenue source.

However, SB8 only suggests that the Legislature evaluate and examine the impacts of lowering or simplifying personal and corporate income tax; not getting rid of them. The BOE’s Runner has said he would “consider a broader sales tax only if it’s part of a revenue neutral tax reform, such as abolishing California’s income tax and Franchise Tax Board.”

Until real discussion about simplifying taxes and protecting California’s jobs occurs, the thought of having to pay a tax to my accountant to fill out and submit my tax return is just more than my stomach can handle.

By Carolyn Cavecche, President & CEO of Orange County Taxpayers Association

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