Pew Trust - As sales tax collections slow and the nation becomes a service-based economy, many states are considering expanding the universe of goods and, especially, services that are subject to the sales tax.
For some states, expanding the sales tax is a straightforward way to get more revenue amid a budget crunch. For others, it’s a way to replace revenue lost in a political and philosophical decision to reduce personal income and corporate business taxes in an attempt to free capital to create more jobs.
Further down the line, some states are looking at taxing new or different endeavors in the face of a changing economy.
In states from Arizona to Oklahoma and West Virginia, lawmakers are considering bills that would impose the sales tax on services ranging from beauty salons to funeral homes; from telephone land lines to cellphones. In Pennsylvania, the governor’s budget calls for an expansion of the state’s sales tax — to include movie tickets, cable service and digital downloads — that he expects to raise about $415 million.
The sales tax has long been a staple of state and local finances. Sales taxes accounted for 34 percent of state and local revenue in 2010, according to the Tax Foundation, a nonprofit group that analyzes state taxes. Revenue from personal income taxes, meanwhile, accounted for 20 percent and corporate taxes accounted for 3 percent. Other taxes and fees made up the balance.