The big story of Wyoming’s excise taxes — the taxes we pay when buying and selling things — is one of economic behavior evolving faster than the tax structure. It’s time for the state to catch up.
Household spending on tangible goods has fallen massively in recent decades while spending on services has gone up. In fact, some research finds that 60 percent of the average household’s expenditures went toward goods 40 years ago. Today that number is down to 40 percent. The shift has been toward services.
We have all read about the new service economy — its jobs, its growth. And we also know how our own household budgets contrast with our parents’ spending during our early lives. Households of 30 to 40 years ago didn’t spend money on internet service, satellite TV, cell phone plans, airline tickets, landscaper services… the list goes on and on. What does this mean for the viability of Wyoming’s sales tax structure? Our state has one of the narrowest sales taxes in the nation with relatively few services taxed.
(A) Agricultural services including landscape consulting and planning, lawn and garden services, other agricultural services that are not otherwise classified and veterinary services except veterinary services provided for farm or ranch livestock; (B) Personal services including beauty shops, barber shops, tax return preparation services and other personal services that are not otherwise classified, provided that personal services shall not include funeral or crematory services; (C) Business services including commercial art and graphic design, court reporting services, disinfecting and pest control services, building maintenance services, computer programming services, data processing services and other business services that are not otherwise classified, provided that business services shall not include legal services or banking services; (D) Amusement and recreation services including dance studios, dance schools, dance halls, bowling centers, physical fitness centers, public golf courses, membership sports clubs and other amusement and recreation services that are not otherwise classified; and (E) Engineering and management services including engineering services, architectural services, surveying services, accounting, auditing, bookkeeping, commercial research, testing laboratories, management services, management consulting services, facilities support services and services of real estate agents and managers.
In addition to legal services - conspicuously absent this year compared to last year's version of the same bill - HB67 does not appear to include health care, housing and utilities. Housing will be affected by the sales tax on management and facilities support services, but apartment lease itself is not taxed.
If we make the one simple assumption that health care, housing and utilities are exempt from the sales tax, and we follow Madden's line of reasoning that consumers need to pay a tax on their purchases of services, then the services tax base that remains available for Madden is quite a bit smaller than what he otherwise suggests it is.
The problem for Madden (in addition to his crafty approach to reality) is that he opens his article at WyoFile by suggesting that we spend much more on services than on goods and therefore need a tax on services. At the same time, the services covered by his bill - HB67 came about on his Revenue Committee watch - nowhere nearly applies to that chunk of consumer spending. In fact, if we deduct health care, housing and utilities from spending on services, we lose about half the tax base that Madden points to.
Furthermore, here in Wyoming the growth in that tax base tracks closely with growth in spending on goods:
When considering all new elements of the bill, the state sales and use tax can be reduced from 4 percent to 3.5 percent. During the final interim committee hearing on the bill, witnesses liked the reduced tax rate, but had reservations on taxing certain services — especially those services that involved themselves personally. But we can’t have the former without the latter. It is critical that citizens understand the reduced sales tax rate of 3.5 percent is only achievable if the broadening aspect of the bill is not significantly diluted with special interest amendments.
- Product A is burdened with a sales tax, while Product B is not;
- Government wants to broaden its tax base, thus expand the sales tax to Product B;
- To make the reform revenue neutral, government cuts the sales tax on Product A while imposing the same, new rate on Product B;
- The cut in the tax on Product A is supposed to offset the increase in the cost of Product B.