Schmudget Blog
— filed under: ,

Modernizing the Sales Tax

Posted by Andy Nicholas at Jan 15, 2010 12:00 PM |
Filed under: ,

Washington State’s sales tax hasn’t kept pace with changes in the economy over the last 75 years. As consumers spend a greater portion of their income on non-taxed services, like spa massages and hair replacement, instead of taxed goods, the state’s sales tax has become less and less adequate to meet the state’s needs.

One potential response to the effects of the economic crisis (detailed in our new policy brief) is to modernize our state sales tax to include currently untaxed consumer services such as hair and nail salons, admissions to movie theaters and sporting events, and travel arrangement services. Extending the sales tax to include services is sound tax policy.  Doing so would generate a sizable amount of resources (about $120 million) that could be used to prevent economically damaging budget cuts this year.  And in the long run, extending the sales tax to consumer services would make it a more adequate and equitable instrument for financing public services.

Bringing the sales tax in-line with the modern economy

The economy and consumer preferences have changed dramatically since Washington's sales tax was enacted in 1935. The graph below shows that consumers now spend a greater portion of their incomes on services than on goods -- a reversal from previous decades.

 


figure3
 

Without extending the sales tax to include currently untaxed services, the tax is likely become an increasingly less adequate source for financing state services.

Improving equity

Extending the sales tax to include consumer services would also reduce fundamental inequities in Washington’s tax system. Under current law, an individual who prefers to spend his or her money on goods, such as electronic massaging devices, is likely to pay more in sales tax than a person who prefers to purchase services, such as a massage from a therapist.  Extending the sales tax to consumer services would ensure that the sales tax treats consumers and businesses equitably, irrespective of their personal preferences or the types of products or services they provide


Click here to read the entire report.

Document Actions
HIGHLIGHTS

Our Seattle Policy Summit

You can watch our Budget Matters 2017 Seattle Policy Summit, which took place on December 6, online. The first part of the day (watch here) featured Washington State Lt. Governor Cyrus Habib and Race Forward President Glenn Harris. The second part of the day (watch here) featured Budget & Policy Center Senior Policy Analyst Jennifer Tran, and a panel of local leaders moderated by Michael Brown of the Seattle Foundation. 

Our Policy Priorities

Washington state should be a place where all our residents have strong communities, great schools, and the chance for a bright future. Our 2017-2019 Legislative Agenda outlines the priorities we are working to advance to build a better Washington.

Testimonies in Olympia

Misha TVW
We'll be in Olympia throughout the 2018 legislative session to testify in support of bills that advance our legislative priorities. Stay tuned for links to the testimonies of our policy analysts (as featured on TVW).