Correction, posted May 19:
The Budget and Tax Center highlighted below how a proposed bill – Senate Bill 628 – considered and discussed by the Senate Finance this week would make landscaping services and services for driveways and parking lots subject to sales tax as part of clarifications of the sales tax base broadening that has happened since 2013.
Upon further review of the bill language, we acknowledge our error in identifying landscape services as one that would be subject to sales tax, as language exists in the bill that maintains the exemption. Technical changes in the bill alter the content and language of various existing statutes related to the sales tax, and interpretation by the Department of Revenue will ultimately determine the specifics of how this will apply to and affect various services.
We will look forward to the fiscal note for this proposal to understand the full impact of this proposal to change the sales tax and business taxes as well. In the meantime, Senate Finance committee members should be mindful of the implications of revenue law changes on the sales tax in the context of the current tax code. The regressive nature of the sales tax means low- and middle-income taxpayers pay a larger share of their income in state and local taxes compared to the highest income earners in the state and ensuring that more tools are available on the income tax side to address that issue is important.
Posted May 18:
The devil is in the details. This old saying has become increasingly true for North Carolina, particularly with tax policies passed in recent years. Yesterday’s Senate Finance committee meeting was no different.
Yesterday, members of the Senate Finance committee discussed a lengthy proposed bill (Senate Bill 628) that makes numerous substantive and technical changes to the state’s revenue laws. Sen. Jerry Tillman, one of the bill sponsors, began the discussion by proclaiming that the bill does not expand the sales tax to include more services. The bill is a very technical read, but a careful assessment of proposed changes to the sales tax reveals that more services would in fact be subject to sales tax under the bill.
Landscaping services, for example, would become subject to the sales tax under the proposed bill. In recent years, lawmakers exempted landscaping services from sales tax as they have expanded the sales tax base to include more services. Under this proposed bill, landscaping services – which includes installing trees, shrubs, or flowers; tree trimming; mowing; and the application of seed, mulch, pesticide, or fertilizer to an area of land – would be subject to the sales tax.
Similarly, services for driveways and parking lots would no longer be exempt from the sales tax under the proposed bill. This means that work done on a homeowner’s driveway and maintenance and repair services provided on parking lots (e.g. debris cleaning, painting parking spot lines, etc.) would be subject to sales tax under the bill.
Tax cuts passed by lawmakers in recent years have largely benefited the highest income earners in the state and profitable corporations. Lawmakers partially paid for these skewed tax cuts by expanding the sales tax base to apply to more services. Sales taxes particularly impact low-income taxpayers since they pay a larger share of their income in state and local taxes than the wealthy. Absent lower sales tax rates or other relief targeted at people of lower incomes (like a state Earned Income Tax Credit), changes that further expand the sales tax base would make the state’s upside-down tax system even worse.
The bottom line: Senate Finance Committee members should revisit the bill and the proposed sales tax expansions and ensure that the measure helps create a state tax system that works for all North Carolinians – not one that further favors those at the top.