Then and Now: Sales tax on services: California’s pipe dream? - Spidell

Then and Now: Sales tax on services: California’s pipe dream?


The “pipe dream”: originally a reference to the fantastical hallucinations caused by smoking an opium pipe.

Looking back over the legislation of the past 40 years, there have been numerous occasions in which a sales tax on services bill loomed over California taxpayers, for example AB 194, which we covered in the July 1995 issue of the California Taxletter. These efforts have been stepped up recently; since Robert Hertzberg became a state senator in 2014, he has introduced such a bill each year (SB 8, SB 1445, SB 640, SB 993, and most recently, SB 522). These bills all failed, and Spidell and other tax advocacy groups have consistently been vocal in speaking out against a sales tax on services.

There are other states that tax some services, but the few attempts to enact a broadly applied tax on services have all failed. For example, in four states (Florida, Maryland, Massachusetts, and Michigan) such laws were passed, only to be almost immediately repealed before they went into effect.1

In California, sales tax on services bills are generally met with strong opposition. The basic arguments against taxing services are:

  • Increased cost to consumers;
  • Increasing the competitive disadvantage faced by California businesses (especially small businesses);
  • Compliance and administrative nightmares;
  • Creating competitive disadvantages between in-state businesses;
  • Tax pyramiding, which occurs when taxes are imposed on various stages of production of an item; and
  • In years where California has a budget surplus, the necessity of such a tax is questionable.

Spidell will continue to oppose attempts to implement a sales tax on services. In comparison to the revenue such a tax would bring in, the disadvantages would do more to hurt Californians than benefit them. We think the Legislature can put that in its pipe and smoke it.

1 California Tax Foundation. “The Challenge of Taxing Services” Available at: https://caltax.org/research/sut_20190109.pdf