Some services will be more expensive in the District of Columbia if a budget measure that has preliminary approval passes in coming months. D.C. Council, the District of Columbia’s lawmaking body, gave initial approval to a 2015 budget package on Wednesday that, among other tax provisions, would impose the District’s 5.75 percent sales tax on certain services. D.C. is not the first jurisdiction that has tried to expand its sales tax base to include more services. Last year, several states explored that option. But the results were mixed. Several of the measures stalled and the idea of taxing services drew fire from an important trade group.
A mong the services that would be taxable in D.C. if the legislation is finalized are:
-water consumption through direct selling establishments;
-rental or leasing of storage space for household goods (except general merchandise warehousing and storage and coin-operated lockers);
-carpet and upholstery cleaning;
-health clubs or training studios;
-car washing and detailing (except for coin-operated self-service car washes); and
-bowling alley and billiard parlor services.
The provisions were recommended by the D.C. Tax Revision Commission, a body set up to recommend improvements to D.C.’s tax system. Not all of the commission’s recommendations to subject certain services to sales tax received initial approval though—such as construction contractors and barber and beautician services.
The commission’s final report states that the District already has a relatively broad sales tax base for services. It recommended the named services because they are typically a final purchase by consumers and they are linked to tangible goods or real property in the District—difficult for consumers to purchase online or in another state. The Council will vote again on the budget this summer.
The U.S. economy long ago began to shift away from manufacturing and toward services, but efforts to reflect this change in the state tax codes have mostly been unsuccessful. Only four states (Hawaii, New Mexico, South Dakota and West Virginia) have tax systems in which services are presumed to be subject to sales tax.
In 2013, states like Louisiana, Ohio, Minnesota and North Carolina considered expanding the sales tax base to services, but only in North Carolina did a limited sales tax base expansion occur—to include admission charges to live performances, movies and museums and cultural sites, and service contracts where the seller agrees to maintain or repair tangible personal property. And Massachusetts had a false start in 2013 when it enacted a tax on computer services. It was effective July 31, only to be retroactively repealed by the legislature on Sept. 27 when it proved extremely unpopular.
A bigger issue that businesses see with imposing sales tax on services is tax pyramiding—this means that some goods and services are taxed multiple times as they move through production and distribution to final retail sale, according to a Council On State Taxation report. This issue could potentially be addressed through exemptions for business-to-business sales, much like there are currently sale-for-resale exemptions, for example. But whether states actually do that is another story.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Do you think the jurisdictions should expand their sales tax bases to services?
For more information about this and other state tax issues, sign up for a free trial of the Bloomberg BNA Premier State Tax Library.
Follow us on Twitter:@BBNAtax
Follow me on Twitter: @RebeccaHelmes
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)