ILNews

Study: Taxing services could yield state $6.8B

October 12, 2009
Keywords
Back to TopCommentsE-mailPrintBookmark and Share

The non-partisan Indiana Fiscal Policy Institute this morning released a new study exploring the ramifications of expanding the state's sales tax to include services.

In its last fiscal year, Indiana raised $5.7 billion from its 7-percent sales tax, which applies to the sales of most tangible goods, with exemptions for items such as prescription drugs, groceries and newspapers.

According to the IFPI study, Indiana could raise as much as another $6.76 billion annually if it extended its sales tax to include all service transactions. Even if Indiana exempted medical and legal services, Indiana could raise almost $4.5 billion from an expanded sales tax, according to IFPI.

Such figures are sure to appeal to legislators in Indiana's General Assembly, who struggled mightily over recession-driven spending cuts this spring. A special session was ultimately necessary to craft a two-year state budget.

Indiana government's economic picture hasn't improved much since then. On Oct. 8, Gov. Mitch Daniels revealed Indiana's revenue for the quarter ended Sept. 30 was $254 million less than previously predicted, despite the fact that Indiana's revenue forecast has been repeatedly revised downward.

New revenue could help fill such gaps. But an expansion of Indiana's sales tax has many potential drawbacks, which the IFPI study details.

For starters, Indiana's 7-percent state sales tax is already the highest in the Great Lakes region. Extending it might prompt Indiana residents to seek services elsewhere. Indiana is currently tied with Mississippi, New Jersey, Rhode Island and Tennessee for the second-highest sales tax in the nation. Only California's 7.25 percent tax is higher.

The IFPI study points out that the effective sales tax rate is actually higher in some regions because of local sales taxes tacked onto state sales taxes. Alabama, for example, has a 4-percent sales-tax rate, but certain localities there have their own 6-percent sales taxes, creating a 10-percent total tax.

Most states, including Indiana, already tax a few services, such as public utilities, hotel-room rentals and stadium admissions, according to IFPI. But only a few, such as South Dakota, West Virginia, Hawaii, New Mexico, Delaware and Washington, tax more than a handful of services.

Indiana currently ranks 39th among states for the number of services it taxes, taxing 24 of 168 services surveyed by the Federation of Tax Administrators.

The logistics of expanding the sales tax to additional services would be challenging for some businesses. IFPI points out it could be difficult for many businesses to levy such a tax. Businesses that already sell some goods would have an easier time than pure-service providers. For example, a cosmetologist that now collects taxes on the shampoos and conditioners its sells while exempting styling services, would simply have to stop segregating taxable and nontaxable sales.

But other businesses that sell no tangible goods would find they suddenly must establish a relationship with the Indiana Department of Revenue and maintain a whole new type of record. The cost could be significant, IFPI points out, particularly for small businesses.

"Of the major sources of revenue available to the state, broad-based taxation of services is the only one yet to be tapped by the State of Indiana," wrote the IFPI report's author, Earl Ryan. "The revenue possibilities are great, and it would bring a degree of equity to the tax system. At the same time, defining the base would be difficult, both conceptually and politically, and the cost of collecting the tax on the part of both the state and the taxpayers would be significant."

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. From his recent appearance on WRTV to this story here, Frank is everywhere. Couldn't happen to a nicer guy, although he should stop using Eric Schnauffer for his 7th Circuit briefs. They're not THAT hard.

  2. They learn our language prior to coming here. My grandparents who came over on the boat, had to learn English and become familiarize with Americas customs and culture. They are in our land now, speak ENGLISH!!

  3. @ Rebecca D Fell, I am very sorry for your loss. I think it gives the family solace and a bit of closure to go to a road side memorial. Those that oppose them probably did not experience the loss of a child or a loved one.

  4. If it were your child that died maybe you'd be more understanding. Most of us don't have graves to visit. My son was killed on a state road and I will be putting up a memorial where he died. It gives us a sense of peace to be at the location he took his last breath. Some people should be more understanding of that.

  5. Can we please take notice of the connection between the declining state of families across the United States and the RISE OF CPS INVOLVEMENT??? They call themselves "advocates" for "children's rights", however, statistics show those children whom are taken from, even NEGLIGENT homes are LESS likely to become successful, independent adults!!! Not to mention the undeniable lack of respect and lack of responsibility of the children being raised today vs the way we were raised 20 years ago, when families still existed. I was born in 1981 and I didn't even ever hear the term "CPS", in fact, I didn't even know they existed until about ten years ago... Now our children have disagreements between friends and they actually THREATEN EACH OTHER WITH, "I'll call CPS" or "I'll have [my parent] (usually singular) call CPS"!!!! And the truth is, no parent is perfect and we all have flaws and make mistakes, but it is RIGHTFULLY OURS - BY THE CONSTITUTION OF THIS GREAT NATION - to be imperfect. Let's take a good look at what kind of parenting those that are stealing our children are doing, what kind of adults are they producing? WHAT ACTUALLY HAPPENS TO THE CHILDREN THAT HAVE BEEN RIPPED FROM THEIR FAMILY AND THAT CHILD'S SUCCESS - or otherwise - AS AN ADULT.....

ADVERTISEMENT