Old idea, new vigor: talk resurfaces of expanding sales tax to services.

• Author: Allen, Bruce C.
• Position: CapitolBeat

Though the California Legislature has adjourned, work is still being done on passing a state budget. However, most California legislators are in full campaign mode--unless they are termed out as they prepare for the general election.

In the waning days of Gov. Schwarzenegger's administration, an old idea resurfaced with new vigor. As a means of leveling out California's revenue stream read, taxes--the governor started talking about expanding sales tax to more services, including accounting and legal.

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Blue Ribbon Commission

In response to that, the Revenue and Taxation Committees of the Assembly and Senate held informational hearings Sept. 1 on the concept. The committee did not consider any specific proposal because none had been developed by the administration, but testimony was taken from Gerald Parsky, chair of the governor's Blue Ribbon Commission on the 21st Century Economy.

Parsky explained that his commission had the charge of developing a tax structure that fits the state's 21st century economy It's goals were: to stabilize state revenues and reduce volatility; promote the long-term economic prosperity of the state and its citizens; improve California's ability to successfully compete with other states and nations for jobs and investments; reflect principles of sound tax policy, including simplicity, competitiveness, efficiency, predictability, stability ease of compliance and administration; and ensure that the tax structure is fair and equitable.

The commission concluded that California's progressive personal income tax is far more volatile than the sales lax. The commission had concluded that the tax base was too narrow and the tax rates were too high. For each of the revenue sources personal income lax, sales lax and corporate income tax California has one of the highest rates in the country, which harms its competitiveness with other states and nations.

Tax System Overhaul?

The commission recommended that California eliminate the corporate income lax and reduce the personal income tax top rate from 9.5 percent to 6.5 percent, and that the stale sales tax be replaced with a new Business Net Revenue Tax.

In previous hearings on the commission's findings legislators were skeptical about a BNRT tax since it was unproven. No action was taken to forward the commission's findings into legislative proposals.

Parsky stressed that instituting a broad sales tax on services, coupled with dropping the other tax rates...