Originally posted – May 01, 2013
The protection of the sales tax exemption for self-service laundries has been the Coin Laundry Association’s leading legislative priority for more than 30 years. It’s an issue the organization continually monitors – and, therefore, it’s something the CLA is keeping a close eye on as the various state legislative sessions came to order this spring.
“We’ve had a rash of governors who are pushing agendas that would accomplish a wholesale removal of sales tax exemptions, in favor of other types of tax relief,” said Coin Laundry Association President and CEO Brian Wallace. “Right now, we have active opposition going on in Minnesota, Ohio and Louisiana.”
As those three states and others have gone through budget challenges in recent years, some view the exempted sales tax as the last big pot of gold that hasn’t really been tapped into. And, in some cases, you’ve got governors whose philosophies are to broaden – and even raise – sales tax, if they can deliver corporate income tax relief, personal income tax relief or even property tax relief.
“It’s shifting the burden, to a certain degree,” Wallace explained.
So, where does that leave the self-service laundry industry?
Certainly, paying sales tax out of a coin laundry is a difficult, if not devastating scenario, for the owners.
In all three of the states currently facing a threat to their sales tax exemption, the CLA has worked through its legislative monitoring service and engaged lobbyists. In the cases of Minnesota and Ohio, this was done through the CLA’s affiliate organizations in those states; however, in Louisiana, the fight has come directly through the CLA’s national headquarters, absent a state chapter in that state.
Why Should Self-Service Laundry Be Exempt?
Historically, self-service laundries have been lumped in as part of larger, broader sales tax exemptions for several different types of service businesses.
But, if some of these other services were to lose their exemptions, should self-service laundries be allowed to maintain theirs? If so, why should laundries be treated differently? What makes them special?
“It’s our position at the CLA that self-service laundries are uniquely qualified for an exemption for a couple of reasons,” Wallace noted. “One of the first things to consider is whether self-service laundry is indeed even a service. It’s right there in the name – the customers provide the labor. Store owners are making equipment available to the customers, and the customers are using it to do their own labor. So, you can have a rudimentary argument as to whether or not this qualifies as a service to be subjected to a sales tax.”
Secondly, because most laundries are operated on a vended basis, it’s nearly impossible to collect such a sales tax. Let’s say a state were to place a 6.785 percent sales tax on self-service laundry. How would it collect that amount on, for instance, a quarter payment for seven minutes of dry time?
On an over-the-counter transaction, there would be no problem, but for a vended transaction, collection would be nearly impossible.
“The laundry owner is faced with either undercharging for the service and essentially eating the sales tax, or raising the price, typically in quarter increments, which may serve to overcharge the customer,” Wallace said. “Neither one is a desired outcome.”
This latter scenario of overcharging laundry customers helps illustrate a third reason laundries should remain exempt from paying state sales taxes. And that’s the fact that it’s the type of sales tax that is extremely regressive in nature.
After all, the general profile of a laundromat customer is someone who is a low- to middle-income resident of the community – someone who is least able to pay more for basic services. Typically, laundry customers are low-income families, seniors, students and the like – a class of individuals who are hard pressed to pay more for these types of services.
Coupling the regressive nature of such a tax with the crucial nature of the service provided offers a fourth reason for laundries to be exempted from any state sale taxes.
The fact of the matter is that clean clothes are a necessity, a basic essential of life.
“The basics are generally given very favorable treatment with respect to sales tax,” Wallace said. “I like to compare it to things like food and medicine – and we consider clean clothes to be a matter of public health, not a luxury service or optional element. It’s not a car wash.”
The next factor to look at is the matter of precedent. As it stands today, there are 45 states that have a sales tax. Of those 45 states, 41 have an exclusion or exemption for self-service laundry, which means that only four states require laundry owners to pay sales tax. Those states are Hawaii, Iowa, New Mexico and West Virginia.
Therefore, any state legislature considering such a tax should realize it would put them far out of step with the way sales tax exemptions are typically used and implemented.
A final factor lawmakers should consider is the argument that placing a sales tax on laundries is a bit like double taxation on store owners.
“Most economists would agree that, anytime you’re taxing the inputs, you don’t tax the outputs,” Wallace explained. “Someone running a laundromat is paying taxes to purchase the equipment, as well as paying sales tax on the utilities being used to furnish the service. So, we don’t think it’s fair to then add another sales tax on a per-vend basis.”
The Battleground States
There are significant efforts underway in the three states currently facing the loss of their sales tax exemptions for self-service laundry.
With respect to Minnesota, MNCLA President Jeff Gardner has spread the word on a grassroots basis, helping members understand the threat that’s at hand. The group has held special meetings and conducted some significant fundraising.
It’s a textbook case of the CLA helping to identify the issue, and the state chapter stepping up to work the issue on a local level, spending hard-earned money to engage a quality lobbyist and have the industry’s voice heard.
“In Minnesota, our governor has thought of several ideas for raising money, which is a big threat in many states,” explained Gardner, who owns Sel Dale Laundromat in St. Paul, Minn. “Even though we were not initially in the governor’s proposal for losing our sales tax exemption, we were very concerned about it because there were so many controversial things the governor was thinking about doing. As it stands, he has left it to the House and Senate to find ways to raise money.”
And, in fact, the MNCLA-hired lobbyist was able to determine that both the Minnesota House and Senate were discussing removing all exemptions from all businesses to find the money they needed.
“Some of the things our lobbyist heard included, ‘Why is drycleaning taxed but not self-service laundry?’ There were comparisons like that being made,” Gardner said. “At this point, it’s concerning for us because we don’t know what they’re looking for, how much money they’re trying to raise or, for that matter, how much money they think they can raise from us.
“We are still monitoring, but we also are actively trying to educate our state representatives as to the reasons why self-service laundry should maintain its exemption from sales tax.”
As of press time, Gardner and the rest of the laundry owners in Minnesota were waiting for the House and Senate bills and budgets to be announced.
“We’re afraid they won’t be specific,” Gardner explained. “We’re afraid they’ll say they’re looking to raise a certain amount of money in tax revenue, but they’re not going to say exactly where they’re targeting to find it – and they might not identify those specific sources until late in the game.
“Our situation is completely different from the ones in Louisiana and Ohio, because in those states they’ve come out and specifically identified self-service laundry as a target. All they’ve said here in Minnesota is, ‘We’re going to raise money – stand by.'”
In Ohio, the state CLA affiliate has hired a Columbus-based lobbyist to help retain the sales tax exemption status for self-service laundry owners in the state.
“For the past couple of months, we have had many meetings with state elected officials to voice our points as why the sales tax exemption should be retained,” said Ohio Coin Laundry Association President Duane King, who spent a day at the state House giving testimony and answering questions in front of the House Ways and Means Committee.
In addition to the meetings and testimony, King also has given interviews to National Public Radio and several local newspapers.
The OHCLA Board of Directors is doing all it can to maintain exemption status; however, the financial cost of fighting the current bill that would include self-service laundries has taken its toll on funding, according to King.
“We need Ohio owners and distributors to help us by making a donation or becoming OHCLA members,” said King, who owns LMARIES Laundromat in Bowling Green, Ohio.
To help the OHCLA help you, visit: facebook.com/StopOhioSalesTaxOnLaundry.
With respect to Louisiana, absent a state affiliate chapter, the CLA has engaged a lobbyist that knows the state well, to work against Governor Jindal’s proposal – which would remove certain types of income taxes, both corporate and personal, in favor of a broader, more expensive sales tax.
Of course, the self-service laundry industry would be part of this sale tax plan, so the CLA is spreading the word and trying to get a grassroots effort underway to protect the industry’s interests; this included organizing a recent emergency meeting of the self-service laundry industry in New Orleans.
It’s Getting ‘Noisy’
“Legislatively, we go through periods where it’s very quiet, and we go through periods where it’s very noisy,” Wallace said. “This appears to be one of the most active legislative sessions on record, in terms of the number of states that are looking at sales tax exemptions as a fresh source of revenue. Luckily, the CLA and its affiliates are on board to advocate for the industry and to protect our business and to protect ourselves against a sales tax that can have a devastating effect.”
How devastating?
As an example, take the prevailing sales tax in your area – take the state sales tax rate, plus any local sales tax rates that will be piggybacked on top of that. In most cases, a laundry owner is looking at anywhere from 6 percent to 8 percent of his or her gross sales being remitted to the state each and every year.
For a typical laundromat – or even a small store – this would cost the owner at least $5,000 or $10,000 a year every year. And for owners of high-volume stores or multiple locations, such a tax can be disastrous.
“In states where a sales tax is in effect, it’s had a chilling effect on the industry,” Wallace noted. “It suppressed the ability to grow the business because of this burden of having to pay the tax in a way that doesn’t really fit our particular industry and our service. The fact that it becomes a receipts tax – a gross revenue tax on the business owner – is one of the main reasons we oppose it.
“If you look at our scenario, we go beyond just not wanting to pay the tax,” he continued. “We’ve got some unique qualifications, based on the nature of the service that we provide, the people to whom we’re providing it, the manner in which payment is accepted, the way most states address the situation and the fact most would agree that you don’t tax the outputs if the inputs are being taxed.
“We think, as dozens if not hundreds of industries go to bat to try to preserve their exemptions, the self-service laundry industry stands out from the crowd because of those unique qualifications.”
