Missouri prohibits further taxation of services

Missouri voters yesterday overwhelming approved Constitutional Amendment 4, which prohibits state and local governments from enacting sales or use tax on any service or activity not subject to sales or use tax as of January 1, 2015. A vote of the people is required to both create and repeal constitutional amendments.

The people have spoken. But there are consequences to banning further taxation of services. Sales tax revenue supports services such as education and police, and according to Richard Sheets, Deputy Director of the Missouri Municipal League and opponent of the measure, restricting that revenue source “could lead to a reduction of vital local services.” It could also make it extremely difficult for the state to find revenue to eliminate or lessen personal and corporate income taxes. A limited number of services, including admissions to places of amusement and recreation and mandatory gratuities, are currently taxed in Missouri.

Indeed, the taxation of services has been a contentious issue in Missouri. Back in 2012, the Supreme Court of Missouri ruled the tax on admissions to places of amusement included instructional classes such as fitness classes. Yet many people pointed out that dance, yoga, and other fitness classes aren’t forms of “amusement” like attending a concert or going to the theater; and in September, the Missouri Legislature overrode a gubernatorial veto and exempted “amounts paid for any instructional class.” That exemption is now secure.

In approving Constitutional Amendment 4, Missouri is bucking a bit of a national trend. Conservative economic philosophy calls not for restricting but for broadening sales tax (and lowering rates), and a number of states have worked or are working to do just that, including California, Indiana, Maine, Ohio, Washington D.C. and West Virginia. They’ve had varying degrees of success. For example, the governor of Pennsylvania abandoned efforts to broaden and increase sales tax but then successfully extended it to digital downloads. North Carolina expanded sales tax to a number of previously exempt services last March and come June, legislators were considering broadening them further.

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