Service tax: it's back: california's budget woes may trigger sales tax on services.

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

A Los Angeles Times article in early May reported that Gov. Schwarzenegger's administration was holding private meetings with stakeholders to prepare them for a tax increase--including potential expansion of sales tax to accounting and legal services.

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Following the article, the governor's office released a press advisory saying that the Los Angeles Times story was inaccurate and that no private meetings had been held with stakeholders to prepare for a tax increase.

The advisory went on to say that the governor's staff had met with various groups to discuss the budget deficit and that all ideas were on the table, but the administration felt that California could not tax its way out of systemic budget problems.

With a delicit approaching $20 billion, it is apparent that something must be done to resolve the state's fiscal crisis.

The following week, other papers reported that new Assembly Speaker Karen Bass was looking at tax reforms that would address California's budget issues and that taxing services--such as accounting and legal services--might be an option.

Prior to making any sudden moves toward that end, however, Bass called for the formation of a blue ribbon advisory panel to review California's tax structure and find the best way to resolve the issues.

CalCPA's Take: Tax is Burdensome, Businesses May Flee State

CalCPA successfully opposed a 2005 attempt to impose a tax on accounting and other services. A sales tax on services, including those provided by CPAs, would be un necessarily burdensome on small businesses, tax consumers for filing taxes and prompt business to move to states that do not tax services.

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"CalCPA opposes any effort to impose a tax on services," says CalCPA Chair Teresa Mason. "Consumers in California alrestales with less egregious tax laws."

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