Tuesday, February 28, 2017

SF165: The Tax-Your-Life Bill

Update: SF165 is allegedly dead. However, let this article stand as a reminder to all our elected officials that it is time for them to abandon any and all efforts at solving our state's fiscal crisis through higher taxes.
Yesterday I pointed to the proposal of a new food tax in Wyoming. I explained that the tax on groceries and beverages for off-premises consumption:
a) is highly unusual - only a half dozen states have one - and therefore looks like a fiscally desperate measure; it is never good for a legislature to put itself in a situation where it looks like they are creating taxes on the border of panic;
b) falls into the small-potatoes category in terms of revenue, as a three-percent tax would only bring in approximately $54 million and therefore do very little to close the state's budget gap; and
c) is heavily regressive, costing poor families several times more out of their disposable income than the average Wyoming family. 

This tax is embedded in the substitute number two of SF165, which is not available under SF165 on the regular legislative bill-tracking website. You can find it by clicking this link: SF165 Substitute 2.

To add insult to injury, this latest - and probably final - version of SF165 also delivers a tax broadside against service-producing businesses of all industries across the state. The bill proposes a sales tax on services, defined as:
(A) Agricultural services including veterinary services, landscape consulting and planning and lawn and garden services;
(B) Personal services including beauty shops, barber shops, funeral service and crematories and tax return preparation 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;
(D) Amusement and recreation services including dance studios, dance schools, dance halls, bowling centers, physical fitness centers, public golf courses and membership sports clubs;
(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; and
(F) Communications services including cable and other pay television services.

This tax throws a wide tax-revenue net across the Wyoming economy. It covers at least six industries (as defined by the national-accounts system) with a total production value of almost $7.9 billion per year; the people who work in these industries earn more than $2.3 billion in annual employee compensation. 

It is important to look at these numbers, even if the bill is vague in defining its tax base. They give us a good idea of what is at stake here:  a sales tax on previously untaxed services puts a large amount of businesses here in Wyoming at a disadvantage compared to out-of-state competitors. Furthermore, the tax forces buyers to scale back their personal spending, especially those at the lower end of the income ladder.

The bill's seemingly purposeful vagueness on the tax base - it uses the term "including" over and over again when exemplifying what industries are going to be hit by the tax - makes it a bit difficult to estimate exactly how much it is going to cost our state. What we do know is that it could impose an extra cost for doing business on companies that are responsible for up to $7.9 billion in economic activity in our state every year. Probably, only a part of those businesses will eventually be hit by the tax, but without a more detailed specification, the SF 165 Substitute 2 bill leaves the door open for a wide, and rather significant new tax burden to be imposed on our state's taxpayers.

With that said, let us take a walk through the tax landscape laid out in the bill. As you wake up in the morning, your first order of business is to go to the gym for a wake-me-up workout. The first thing that greets you at the door is a new tax imposed by SF165. When you are done, you go home, get the morning chores over with and send the kids off to school. You arrive in good time at work - you are in engineering services -  to get a new rant from your boss about how the new tax imposed by SF165 has put your business at a disadvantage compared to out-of-state competitors. "It only applies to the production of services here in Wyoming" he points out. "Zeke's Engineering out of Roadbump, New Mexico are not located here, so they are not subject to the tax. They just snatched a new client from under our nose. No Christmas bonus this year!"

During lunch you make a quick dash and pick up some groceries. At the register, the SF165's new food tax takes another few percent out of your hard-earned money. After work, it is time to drive your daughter to dance, where the studio owner hands you the new tuition bill asking for more money from hereon. "Why?" you ask. "SF165" she says. 

While your daughter is in dance class, you drag your curse-on-you-I-don't-need-a-haircut son the barber - and who greets you at the door? SF165! 

The skilled barber talks your son into cooperating. You think you can relax. But no: you get a call from that landscaping company that offered to redo your front yard. "We're sorry, but we have to ask you for more money" the guy says. "Why?" you ask. "SF165" he mutters.

Last item on today's agenda: a quick stop at the veterinary so Rover can get his annual checkup. "But why is the bill higher now than last year?" you ask. "Inflation?" The vet shakes his head. "Oh, wait... let me guess" you mutter, "SF165?" "Yep" says the vet and gives Rover a clean bill of health.

Before you go to bed, you make the mistake of opening the new bill from the internet and cable provider. Guess what SF165 did to the bottom line...

Then your spouse calls. "Hi, honey, sorry I didn't call earlier. We're still here at the office. We've done the numbers back and forth, over and over again..." "So what's the bottom line?" you ask, with a bad feeling in your stomach. "Chuck, Helen, Bob and I are all in agreement. SF165 tipped the scale for us. We can't compete with out of state accountants anymore. We... we're gonna have to shut the doors... I'm sorry. I'll be home soon."

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