Services Sales Tax May Pass In 2001

Rep. Maynard Miller’s plan to impose sales tax on services disappeared after a brief airing by the House tax panel last week.

But the idea will be back next session. And there are those around the Statehouse willing to predict that eventually - likely 1999 or 2001 - at least part of the changes the Moscow Republican is calling for will become law.

It’s a matter of money.

Idaho’s income tax already is 15th-highest in the country. The sales tax is 5 percent, which gives merchants in Idaho’s border counties heartburn because they are at a 5 percent disadvantage in competing with stores just across the border in Oregon.

Property tax? Don’t even think about raising the rates. A lot of legislators shudder at the prospect of expanding property taxes.

Farm economists warn there might be a major downturn in income generated by the state’s largest industry.

That’s going to leave the state extremely short of cash, and soon.

The state can continue squeezing public schools, higher education, cutting the state employees’ raises this year and clamping down on almost all budgets. But not for long.

And with the cost of prisons soaring out of control, the state’s going to have to look for a new source of revenue.

Taxing services - or repealing some of the hundreds of exemptions the Legislature has granted since the sales tax was started in 1966 - could bring in millions of dollars or even hundreds of millions of dollars, depending on how much ground is covered.

It will be a major battle. All the groups, companies and individuals who have benefited from their sales tax exemption will battle to keep them.

Miller’s bill had little chance, even though it held out to lawmakers a major reduction in local property taxes used to finance schools.

For one thing, Miller’s measure increased the sales tax to 5.5 percent. Rep. Hilde Kellogg, R-Post Falls, noted that if the sales tax base were expanded, the rate should be cut, not raised.

Miller’s legislation contained a strange-looking list of services to be covered. But a state financial official said it came from a standard federal guideline on service jobs.

That’s why weather forecasters, collection agencies, pest control sprayers, parking lot attendants, writers of advertising copy, cloud seeders, inventors and music arrangers all found themselves in the same section of the proposed law.

The governor’s Division of Financial Management has estimated some major groups of services that aren’t taxed.

Just three, health and medical services at $128 million, professional services at $108 million and construction at $68 million, alone could swell state tax coffers by $15 million if subject to the sales tax.

Taxing utility sales, $45.5 million per year, social services, $37 million, and communications, $24 million, could add another $5 million.

Miller plans to reintroduce his legislation next session. That’s an election year, and there’s little prospect lawmakers want to get into major battles over raising sales taxes while running for re-election.

That means 1999 is a possibility, and experts say that could be the time when state cash really starts running short. When 2000 comes, it will be an election year, so 2001 is more likely to be the time when serious consideration comes.