State legislators continue to express ongoing interest in expanding the sales tax to new services, according to MultiState Associates, a government relations firm headquartered in Alexandria, Va.
Here’s a look at where those efforts stand:
Income tax elimination/reduction efforts. A number of lawmakers have indicated they want to eliminate or significantly reduce the income tax. Thus far, none of these proposals include any new taxes; however, given that the income tax can comprise more than one-third of a state’s revenues, budget writers may need a “pay for” sooner or later.
For example, West Virginia senators have said that they may amend Governor Jim Justice’s personal income tax cut proposal to include an unspecified sales tax component. Additionally, several states are considering the idea of taxing services to fund income tax cuts.
Revenue diversification in energy-rich states. Unlike states that seek to expand the sales tax to eliminate income taxes, several energy-rich states have introduced sales taxation of services legislation to diversify their revenue portfolios. Specifically, they are concerned that their heavy reliance on energy taxation could lead to fiscal problems should the energy markets experience a significant, prolonged downturn.
In January, Wyoming lawmakers considered a bill (which was ultimately defeated) that would have expanded the sales tax to nearly all services. In addition, Alaska and Montana have considered expanding their sales tax bases; however, thus far, no legislation has been introduced in either state.
Other pending legislation. There are four other live, pending bills that would significantly expand the sales tax base to services. A pair of Nebraska bills would replace most of the state’s other taxes with a new expanded sales tax and apply that tax to all “new goods and services,” respectively. In Texas, a pair of bills would impose a value-added tax on the sale of all services and property.
