In an attempt to balance their states' budgets, Michigan and North Carolina have been considering a tax on services, including self storage, for several months. Now Pennsylvania's Governor wants Pennsylvania to follow suit. Pennsylvania Governor Ed Rendell announced earlier this month that he wants to lower Pennsylvania's sales tax from six percent to four percent, but apply it to more purchases, including sales of services such as self storage.
Only a few special kinds of sales would remain free of sales tax in Pennsylvania if Rendell's budget plan is approved by the legislature. The last remaining untaxed sales goods would be food, clothing, drugs, manufacturing, and sales by nonprofit groups. In addition to self storage, other services that would be taxed under Rendell's budget plan include home appraisals, engineering, accounting, legal services, and consulting. Nearly all services would be taxed in Pennsylvania -- health care services and educational tuition, however, would remain untaxed.
Rendell said that the new budget, if passed, would make life easier for his successor (Rendell is in his last term as Pennsylvania's governor). "There's a perfect storm coming in the year after I am no longer governor," Rendell told an Indiana Area Senior High School civics class, using his speech before the students as his opportunity to announce the new budget plan.
Broadening the sales tax base is not Rendell's only proposed source of new revenues. He has also proposed that Pennsylvania start taxing cigars and chewing tobacco (in addition to the tax that is already levied on cigarettes), impose a tax on natural gas removed from the state's gas deposits, stop giving discounts to retailers who meet the government's deadlines for turning in sales tax monies, and stop allowing Pennsylvania businesses to avoid paying corporate taxes by opening Delaware offices.
According to Pennsylvania's Office of the Governor, Rendell's plan will prevent the state from developing a massive budget deficit when its federal stimulus funding money is gone.
Several analysts who follow tax issues have predicted that the plan to expand the sales tax to services is not likely to be enacted, in any of the states where it is being proposed.
"It is not politically popular to expand the sales tax base, so eventually we will see end to it," Kail Padgitt, an economist who works for the Tax Foundation, commented in Walt Williams' column at OfficialPayments.com today. Ron Alt, a senior research associate at the National Federation of Tax Administrators, agreed. "It is always viewed as a new tax rather than broadening the tax base, which it is really doing," he remarked.
Sources used:
etail.html">"Gov. wants to expand sales tax." WJATV.com. April 15, 2010.
Office of the Governor of Pennsylvania. "Governor Rendell proposes plan to address future deficits: fairer tax system with lower sales tax rate, business tax cuts."
Ross, Chauncey. "In Indiana, Rendell spells out plan to balance state budget." The Indiana Gazette. April 7, 2010.
Williams, Walt. "Tax this! States reconsider sales tax exemptions amid budget troubles." Official Payments. April 15, 2010.