The budget passed by state lawmakers last week expanded the sales tax base to include additional services that are not currently taxed. Accordingly, the repair or upkeep of a vehicle, the repair of a broken washer or dryer, or the maintenance of an air conditioning unit will now be subject to the sales tax.
It appears that the weekend gave policymakers time for some second thoughts about their plan, however. This week, state lawmakers are now aiming to pass a bill that will roll back one particular aspect of the sales tax base expansion included in the budget.
House Bill 117 (HB 117) includes a provision that would exempt repair, maintenance, and installation services on tangible property and motor vehicles covered under manufacturer or dealer warranties from the sales tax. Accordingly, under HB 117, if your vehicle or tangible property is covered under a warranty then you don’t pay a sales tax on repair and upkeep services. To the contrary, if your vehicle or other tangible property is not covered under a manufacturer or dealer warranty then you will pay more in sales taxes.
This tax change means that two people can own similar tangible property, but one could potentially end up paying more in sales taxes simply because they don’t have a manufacturer or dealer warranty. This is troubling because it is likely to particularly harm low-income taxpayers who already pay a larger share of their income in taxes compared to the well-off. Low-income taxpayers who have to take their non-warranted vehicle to an auto shop for an unexpected repair will pay more in sales taxes, for example. Meanwhile, those who are able to afford costly warranties will escape having to pay more in sales taxes.
The backtracking on services included in the sales tax base expansion contradicts state lawmakers’ supposed commitment to base broadening on principle. Broadening the sales tax base has been sold as a way to make the state’s tax code more effective and ensure that it reflects a more service-oriented economy. That appears to be the case only if powerful lobbyists don’t object. Read More