Blue Ribbon Tax Structure Commission. Sales Tax on Services August 31, 2010 Sara Teachout

Transcription

1 Blue Ribbon Tax Structure Commission Sales Tax on Services August 31, 2010 Sara Teachout

2 70% 60% Personal Consumption Personal Consumption - Goods Personal Consumption - Services 50% 40% 30% 20% 10% 0%

3 Gross Domestic Product National BEA Data Personal Consumption - Goods Personal Consumption - Services Government Consumption Net Exports Gross Private Domestic Investment Billions of Dollars Year

4 2007 Vermont GSP $24.6 billion 10% 2% 13% Retail, 2007 Accomodation, Vermont GSP $24.6 Food B& Arts 2% Government 8% 14% Agriculture, Mining Manufacturing Wholesale, Transp, & Utilities 10% 3% Construction and Real Estate Finance, Insurance & Information residential 12% Prof, Mgmt, and Admin Services Educational Services 16% 10% Health Care & Social Assistance Other Services

5 Health Care Services Comprehensive sales tax on all services (HI, NM, SD). These are really gross receipts taxes that apply to the business not the consumer. Eliminates SOME problems such as health care services covered by insurance. Note: Both NM and SD has large health care services exemptions. Example: Hawaii GET (General Excise Tax) on Medical and Dental Services The GET is imposed on gross income which providers of goods and services derive from business activities in Hawaii; the GET on gross income from medical and dental services provided to patients is 4%. Although the GET is levied on the health care provider rather than on the patient, it is a common practice for health care providers to "visibly pass on" the GET to patients. Visibly passing on the GET is neither required nor prohibited by the GET law which is silent on this matter. Whether the health care provider visibly passes on the GET is a matter of contractual agreement. The Office of Consumer Protection has ruled, however, that the amount visibly passed on and represented to be the GET cannot exceed the actual tax due on the transaction.

6 Kansas Services to TPP (tangible personal property) Kansas imposes a 6.3% state retailers sales tax, plus applicable local taxes on the: Retail sale, rental or lease of tangible personal property; Labor services to install, apply, repair, service, alter, or maintain tangible personal property, and Admissions to entertainment, amusement, or recreation places in Kansas.

7 Texas Taxable Services If you operate a service business in Texas, you may be required to collect sales tax. Your Service Business May Be Taxable A Texas business that provides a taxable service for a fee is required to obtain a sales tax permit and collect the state and local sales tax. Listed below are some types of services that are taxable: Amusement services Admission to movie theaters, antique shows, sporting events (e.g. football and baseball games), health clubs, carnivals, country clubs, golf courses, amusement parks, and other similar events. Cable television Distribution of video programming, with or without the use of wires, to paying customers. Credit reporting Creation or delivery of a credit report or any part of a credit report for fees, dues, or other consideration. Data processing Using a computer for word processing, data entry, data production, or compilation, storage, and manipulation of information. Examples of data processing include check preparation, accounts payable or receivable preparation, and web site creation, storage and maintenance. Merely using a computer as a tool to help perform a professional service is not a data processing service. Debt collection Any activity performed for consideration to collect or adjust a delinquent debt, to collect or adjust a claim, or to repossess property subject to a claim, including activity performed in furtherance of the satisfaction or compromise of a debt or claim. Information services Furnishing general or specialized news or other current information or electronic data research or retrieval. News syndicates, financial reporters, and investment researchers must collect tax on their services. These services are not taxable, however, when provided to Federal Communications Commission (FCC)-licensed radio or television stations or newspapers published daily, weekly, or other short interval. Insurance services Appraisal, inspection, investigation, claims adjustment or processing, and insurance loss prevention. Internet access Giving customers access to the Internet for information, electronic mail and other online services. Motor vehicle parking and storage Parking and storage fees for a motor vehicle, including parking meters (either private or municipally owned), fees, decals, and parking permits, and impound fees. Non-residential real property repair, restoration, or remodeling All charges for labor and materials to rebuild, replace, alter, modify or upgrade existing non-residential realty. Non-residential real property repair, restoration and remodeling do not include the addition of new usable square footage or scheduled and periodic maintenance. Non-residential real property includes commercial establishments such as manufacturing facilities, restaurants, offices, and hospitals, but does not include property used as a family dwelling such as apartment complexes, nursing homes, and retirement homes.

8 Texas Taxable Services (cont.) Personal property maintenance Services, such as shoe shining or repair, and dog grooming. Personal property remodeling or repair Services, such as appliance repair and furniture refurbishing or upholstering. Personal services Laundry, dry cleaning, carpet cleaning, massage services, Turkish baths, and escort services. Real property services Extermination and pest control, garbage and other waste collection or removal, janitorial and custodial services (including parking lot sweeping or cleaning), landscaping and lawn maintenance (including tree surgery and plant leasing), and surveying. Security services Private investigation, armored car service, armed courier service, burglar alarm system installation and/or monitoring, guard dog service, and some medical alert services. Taxable labor Services employed in manufacturing, assembling, fabricating, or processing products, even when the customer provides the raw materials, tools, or equipment. Examples of taxable labor include developing photographs, producing artwork, printing, calligraphy, custom sewing or tailoring, catering, and assembling products such as toys, furniture, or equipment. Telecommunication The electronic or electrical transmission, conveyance, routing, or reception of sounds, signals, data, or information using wires, cable, radio waves, microwaves, satellites, fiber optics, or any other method now in existence or that may be devised. Examples of telecommunications services include long-distance and local telephone service, fax service, wireless phone service, pager services, and electronic mail (unless sold bundled with Internet Access.) Telephone answering services Receiving and relaying of telephone messages by a human operator. Utility Transmission and Distribution Sales of transmission or distribution of electricity to an end-use customer by a transmission and distribution utility, if the customer's consumption of electricity is subject to sales tax (05/2003)

9 Iowa Taxable Services At the time of a taxable purchase, Iowa state sales/use tax is collected by the retailer from the buyer. Unlike tangible personal property, which is subject to sales/use tax unless specifically exempted by Iowa law, services are subject to sales/use tax only when specified by Iowa law. Iowa sales tax is due when the taxable service is rendered, furnished, or performed. The Iowa use tax complements the Iowa state sales tax. Generally, when a taxable service is purchased or obtained outside of Iowa for use in Iowa, it is subject to Iowa use tax.

10 Iowa Taxable Services TAXABLE SERVICES aircraft lease or rental, 60 days or less alteration and garment repair armored car services bank and financial institution service charges barber and beauty services battery, tire, and allied services boat repair cable/pay television fees camera repair campgrounds carpentry carpet and upholstery cleaning and repair communication services; excluding Internet access fees dance school and dance studio dating services demolition drain cleaning; unplugging toilets, sinks, and sewers dry cleaning, pressing, dyeing, and laundering electrical and electronic repair and installation employment and executive search agencies excavating and grading exterminators farm implement repair of all kinds flying service and instruction furniture repair and cleaning fur storage and repair garbage collection and disposal, nonresidential commercial only golf and country clubs and all commercial recreation fees, dues, and charges gun repair house/building moving household appliance, television, and radio repair investment counseling janitorial and building maintenance or cleaning; non-residential only jewelry and watch repair landscaping, lawn care, and tree trimming and removal limousine, including driver machine operator fees machine repair of all kinds massage; unless performed by a licensed massage therapist mini-storage motor repair motor vehicle, recreational vehicle, and recreational boat rental; when rented without a driver or operator motorcycle, scooter, and bicycle repair oilers and lubricators on vehicles and machines office and business machine repair painting, papering, and interior decorating parking facilities pet grooming pipe fitting plumbing, including drain cleaning and unplugging toilets, sinks, and sewers reflexology roof, shingle, and glass repair security and detective services sewage services, nonresidential commercial only sewing and stitching shoe repair and shoeshine sign construction and installation storage warehouse or lockers of raw agricultural products storage of household goods swimming pool cleaning and maintenance tanning beds or tanning salons taxidermy telephone answering service and telephone services test laboratories, except tests on humans and animals tin and sheet metal repair tree trimming and removal turkish baths and reducing salons vehicle repair vehicle wash and wax water conditioning and softening weighing welding well drilling; repair only wood preparation (for example, stripping, cleaning, sealing) wrapping, packing, and packaging of merchandise other than processed meat, fish, fowl, and vegetables wrecker and towing

11 Mazerov B2B Options Comprehensive tax on all services including B2B Tax only household services; exclude all B2B Tax household services; exclude services that are primarily business services (example: payroll processing); tax services that are widely purchased by both households and businesses (example: care repair); tax business purchases that are disguised forms of personal consumption

12 Revenue Estimates for 3 Options Sales Tax on Services 2007 Value not Taxed 1% Tax ($ millions) 1% Tax excluding B-to-B Exclude Most B2B Services* Construction 1,989,717,600 (privately owned projects22.1 only) Transportation 228,310, Finance & 282,416,000 Insurance Real Estate 177,074, Professional 1,636,505,000 Services Administrative 517,084,000 Services (B2B) Personal Services 336,819, Educational 82,454,000 Services (federal income tax) Health Care 3,537,058,000 & Social Services (all) ,787,437, Revenue Neutral Rate (rounded up to 0.5%) All 4.5% 5.0% 5.0% excluding health care 5.0% 5.5% 5.5% * residential construction only; no administrative services; all personal/otherservices Prepared by JFO/st

13 Current Sales Tax According to one statistic 25% of the current sales tax on goods may be paid by businesses; this could account for 1.5% of the 6% sales tax rate. In FY14, this would account for approximately $90.5 million of the forecast revenue.

14 Tax Exemptions Eliminate Sales Tax Exemptions Food Agricultural M&E 2007 Value not Taxed 1,466,804,000 Clothing & Footwear 336,009,000 Agricultural Inputs (feed, 226,666,667 fertilizer etc.) 21,666,667 Machinery & Equipment 5,413,333,333 for manufacturing & newspapers 54.1 Packaging & Shipping 20,000,000 Materials used by Manufacturers 0.2 Electricity, Oil, Gas326,666,667 and other fuels for Manufacturing 3.3 Electricity, Oil, Gas900,000,000 and other fuels for Residential9.0 Use Electricity, Oil, Gas and 56,666,667 other fuels for Farm Use Aircraft and Depreciable 5,000,000 Parts (all until 2018) Rentals of Coin-Op Laundry 20,000,000 Machines and Car Washes 0.2 Admissions to Nonprofit 20,000,000 Museums 1% Tax ($ millions) Prescription & Nonprescripton 843,333,333Drugs & Medical Equip Exclude B2B Revenue Neutral Rate (rounded) All 4.50% 5.50% excluding food 5.75%