Vendors fret service taxes
BY MICHELLE MILLHOLLON
Capitol news bureau
March 18, 2013
In a struggling economy, Baton Rouge salon owner Cheryl Landry said her customers scrimp on beauty services.
Demand for highlights and massages shrinks when money is tight.
Landry is concerned that demand will dip even further with the governor’s push to expand the state’s sales tax base to include hair cuts, zoo tickets, cable television and other services.
“Business is already slow,” she said. “They will cut back if they have to start paying taxes on it. Money is so tight now.”
Gov. Bobby Jindal wants to eliminate the state’s personal income and corporate taxes that currently account for nearly $3 billion in revenue for state government.
The governor also wants to set aside money to pay for economic development incentive programs, a business inventory tax break, rebates and a child care expense tax credit.
Legislators — and service providers like Landry — want to see the legislation designed to sweep Jindal’s plan into law. The session is less than a month away. The governor pitched his plan to legislators last week. But he handed them a two-page outline instead of a drafted bill. The legislation itself apparently still is a work in progress.
“The Baton Rouge Zoo always tries to keep our prices low and affordable for all guests. At this time we do not have all the details on the proposed tax that are necessary to determine how it might affect our operation and impact our attendance, said the zoo’s director, Phil Frost.
All total, $3.6 billion needs to be generated to account for the taxes that would go off the books and the expenses that still must be met. Under the new tax plan:
- State sales tax would increase from 4 percent to 5.88 percent.
- Certain tax exemptions would disappear.
- The tax on cigarettes would go up.
- A new swath of services would be taxed.
The new taxable services would include cable television, internet service, hair cuts, tanning, pet grooming, movie tickets and a buggy ride around the French Quarter. Annual pet shots would be subject to a 5.88 percent state sales tax. Zoo admission now would be taxed at the state level. Cabbies would have to compute state taxes along with the fare for a trip from the airport to a hotel.
The Jindal administration outlined the new taxable base in broad categories such as “cable and other subscription services.” The generalities do not detail what other monthly expenses, such as a cellphone bill, would be included.
The package’s sponsor, state Rep. Joel Robideaux, said he still is getting a handle on the specifics. The proposal will be considered in the legislative session that starts in April.
“A lot of that stuff, I don’t even know,” he said.
Robideaux, R-Lafayette, chairs the House Ways and Means Committee that is scheduled to meet Tuesday at the State Capitol. The only business item listed on the agenda for the committee to tackle is “tax reform.”
He said he will hand out the pages of the proposal that are ready for discussion, withholding other parts that still need fine tuning. The focus, he said, will be on mastering the calculations in a complicated tax package that likely will require hundreds of pages of legislation.
One of the calculations is the $1.4 billion that the administration plans to collect by taxing photographic, travel arrangement, investigation, waste management, data processing, personal care and other services.
Tim Barfield, executive counsel for the state Department of Revenue, told legislators that thousands of hours of research went into the administration’s tax proposal.
“The vast majority of Louisianans will see a significant benefit,” said Barfield, who is handling the proposals for the administration. “The average household will put $455 a year in their pocket under this plan, $455 more than they’re putting in their pocket today.”
Barfield characterized broadening the base of taxation as an economic trend.
Texas already taxes debt collection, Ancestry.com subscriptions, insurance appraisals, dog grooming, massages, carpet cleaning, home alarm installation, locksmith services, pest control, lawn maintenance and a visit to a fortune teller.
Exactly how much revenue that generates is unclear since Texas does not separate out services in its reporting.
Former Texas state Rep. Talmadge Heflin, director of the Texas Public Policy Foundation’s Center for Fiscal Policy, said his organization crunched the numbers on expanding taxable services even further and raising the state sales tax rate in order to eliminate property taxes.
He said the state sales tax rate would have to go to 11 cents on the dollar to make the numbers work.
“At 9 cents, most people were pretty favorable. Eleven cents, it’s a harder sale. It’s not in the mix,” he said.
In Louisiana, Jindal’s tax plan would create one of the highest combined state and local sales tax rates in the nation. The average combined rate now would surpass 10 percent.
State Agriculture Commissioner Mike Strain said he had brief conversations with the administration before the broad concepts of the proposal were unveiled.
He said he came away from those conversations with the understanding that the agricultural sector would not be taxed. Agriculture and forestry support services are included in the administration’s new taxable services base.
“What does that mean?” Strain questioned. “Is that fertilizer delivery? Is that repair and mechanics? I don’t know what that means yet.”
He added: “I was never told they were going to tax services” in the agricultural industry.
The administration is making a concession for service providers with annual revenue under $10,000. They will be excluded.
State Rep. Eddie Lambert, R-Prairieville, said the concession creates a whole slate of problems in his mind.
He wonders what will happen if a service provider collects taxes and then only takes in $9,999 in revenue or if the provider has an unexpectedly good year and exceeds $10,000 but didn’t collect sales taxes.
State Rep. Ted James, D-Baton Rouge, said he craves details.
“I’m upset, No. 1, that we didn’t get a bill and I don’t see us getting a bill until very close to the start of session,” James said.