Missouri Voters Could Prohibit New Sales Taxes on Services

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By Christopher Brown

Nov. 2 — Missouri voters could take new sales taxes on services off the table if they approve a proposed constitutional amendment on Nov. 8.

The measure, which appears on the ballot as Constitutional Amendment 4, would prohibit state and local governments from imposing the sales or use tax on services that weren’t subject to the tax before 2015. Missouri, like most states, imposes sales tax on relatively few services, relying almost entirely on sales of tangible goods for sales tax revenue.

A poll taken in early October by a Missouri newspaper suggested that the measure hadn’t gained much traction with voters. According to the poll, taken by Remington Research Group for the Missouri Times, 49 percent of voters opposed the measure, 23 percent supported it and 27 percent were undecided.

Real Threat

Supporters of the measure, including the Missouri Association of Realtors, say that the threat of new taxes on services is real, pointing out that Missouri lawmakers have considered new sales taxes on services in the past seven legislative sessions. They argue that lawmakers around the country increasingly see sales taxes on services as an answer to their states’ budget woes. In addition, supporters contend that such taxes are inherently regressive, hitting low- and middle-income taxpayers hardest.

Scott Charton, spokesman for Missourians for Fair Taxation, a group set up by the realtors’ association to support the measure, told Bloomberg BNA Nov. 1 that Amendment 4 was a “pre-emptive strike against new sales taxes on services.”

“You don’t wait until the house is on fire to get a fire extinguisher,” he said.

But the proposal has drawn fire from both ends of the political spectrum: from the right as a base-narrowing measure that will make comprehensive tax overhaul more difficult to achieve, and from the left as an unnecessary and potentially harmful restriction on the ability of state and local governments to generate the revenue needed for important government services.

Opponents include the Missouri Municipal League and the Missouri Budget Project, as well as the Washington, D.C.-based Tax Foundation, a free-market-oriented tax policy group.

Slow Crisis

Scott Drenkard, director of state projects for the Tax Foundation, told Bloomberg BNA Nov. 2 that the sales tax is in a “slowly unfolding crisis across the country,” and that extending it to cover services may be necessary for it to continue as a meaningful source of government revenue in a changing economy.

“The sales tax started back in the 1930s, when the economy still was heavily focused on goods rather than services,” he said. “And as originally conceived, it was limited to goods. But now we’re in an increasingly services-based economy, and restricting the sales tax to goods leads to distortions and higher rates elsewhere.”

Drenkard said sales taxes on services could be a good idea in the context of a tax overhaul plan that would broaden the base and lower rates overall. But the Tax Foundation doesn’t support taxing business-to-business services, which increase the final cost of goods to end users and can produce a “pyramiding effect,” he said.

Traci Gleason, a spokeswoman for the Missouri Budget Project, told Bloomberg BNA Nov. 1 that the measure was, at best, unnecessary in the current policy climate, and could turn out to be damaging to the state in future years.

“Missouri really doesn’t tax many services right now, and there’s no sign that lawmakers are going to start doing so,” she said. “But we think that it’s very unwise to remove the possibility from the Legislature in a changing economy, and when we may need the revenue to support needed services in the future.”

To contact the reporter on this story: Christopher Brown in St. Louis at ChrisBrown@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

For More Information

The official ballot title for Constitutional Amendment 4 is at https://www.sos.mo.gov/petitions/2016BallotMeasures.

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