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California: Taxing Services Could Generate $122.6 Billion in Revenue

  • Apr 16, 2015 | Gail Cole

 Should more services be subject to California sales tax?

A bill currently under consideration in the California Legislature seeks to expand California sales and use tax to numerous services.This is not the first time California lawmakers have considered extending sales tax to services; two such measures failed in 2012. Yet this time around, broadening sales tax is being linked to upward mobility.

SB 8 sponsor Senator Bob Hertzberg (D) argues taxing services is a natural response to the state’s economic revolution. “Eighty percent of California’s economy is now providing services, not goods, and most of these services are untaxed.” As a result, he notes, California is too dependent on highly fluctuating personal income taxes.

According to a recently released California State Board of Equalization study, Estimate of Potential Revenue to be Derived from Taxation of Currently Non-Taxable Services, the state could receive approximately “122.6 billion in revenues if it levied an 8.4 percent sales tax on all services.” $57.3 billion could go into the state’s general fund. 8.4% is the current average California sales tax rate.

Approximately 2-dozen services are currently subject to sales tax in California. The $122.6 billion referenced in the BOE study comes from applying the 8.4% sales tax to all currently untaxed services – both employer (a business with paid employees) and non-employer (a business with no paid employees) establishments.

Under Sen. Hertzberg’s measure, neither health care nor education services would be subject to tax because they are deemed essential. In addition, SB 8 does not specify a tax rate.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.