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
2015 Distinguished Barrister &
Up and Coming Lawyer Reception

Tuesday, May 5, 2015 • 4:30 - 7:00 pm
Learn More


ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. Sociologist of religion Peter Berger once said that the US is a “nation of Indians ruled by Swedes.” He meant an irreligious elite ruling a religious people, as that Sweden is the world’s least religious country and India the most religious. The idea is that American social elites tend to be much less religious than just about everyone else in the country. If this is true, it helps explain the controversy raking Indiana over Hollywood, San Fran, NYC, academia and downtown Indy hot coals. Nevermind logic, nevermind it is just the 1993 fed bill did, forget the Founders, abandon of historic dedication to religious liberty. The Swedes rule. You cannot argue with elitists. They have the power, they will use the power, sit down and shut up or feel the power. I know firsthand, having been dealt blows from the elite's high and mighty hands often as a mere religious plebe.

  2. I need helping gaining custody of my 5 and 1 year old from my alcoholic girlfriend. This should be an easy case for any lawyer to win... I've just never had the courage to take her that far. She has a record of public intox and other things. She has no job and no where to live othe than with me. But after 5 years of trying to help her with her bad habit, she has put our kids in danger by driving after drinking with them... She got detained yesterday and the police chief released my kids to me from the police station. I live paycheck to paycheck and Im under alot of stress dealing with this situation. Can anyone please help?

  3. The more a state tries to force people to associate, who don't like each other and simply want to lead separate lives, the more that state invalidates itself....... This conflict has shown clearly that the advocates of "tolerance" are themselves intolerant, the advocates of "diversity" intend to inflict themselves on an unwilling majority by force if necessary, until that people complies and relents and allows itself to be made homogenous with the politically correct preferences of the diversity-lobbies. Let's clearly understand, this is force versus force and democracy has nothing to do with this. Democracy is a false god in the first place, even if it is a valid ideal for politics, but it is becoming ever more just an empty slogan that just suckers a bunch of cattle into paying their taxes and volunteering for stupid wars.

  4. I would like to discuss a commercial litigation case. If you handle such cases, respond for more details.

  5. Great analysis, Elizabeth. Thank you for demonstrating that abortion leads, in logic and acceptance of practice, directly to infanticide. Women of the world unite, you have only your offspring to lose!

ADVERTISEMENT