[BOE] – The California State Board of Equalization released an estimate Tuesday indicating that California’s state and local governments may receive approximately $122.6 billion in new revenue if tax was collected on services that are currently non-taxable. Of that amount, $60.9 billion could go to the state, with $61.7 billion for city, county, and other local government entities. The estimate assumes a statewide average sales tax rate of 8.42 percent.

Currently, sales tax generally only applies to the retail sale of tangible personal property, such as a bicycle. Most services are not taxed, except for required services related to the retail sale of tangible personal property, such as assembly charges associated with the retail sale of a bicycle.

The BOE’s Research and Statistics Section produced this estimate at the request of the California State Senate Governance and Finance Committee. The BOE’s Chief Economist and research staff studied 15 categories of service industries, including health care, agriculture, construction, real estate, finance, transportation and warehousing, and various professional services, such as attorneys, accountants, hairstylists, car washes, and auto and shoe repair. Researchers identified the components within each industry that are currently subject to sales tax, and excluded most of them from this estimate. This estimate took about four months to complete.

“Eliminating income tax is impractical, and inconsistent with our economic structure.  However, it is wise to strike a taxation balance with the goal of stimulating job creation, capitalizing on innovation, and helping Californians compete with the rest of the world — without destroying our environment,” said Chairman Jerome E. Horton, State Board of Equalization, Third District.  “Without this balance, the adverse effects may push people and businesses out of California.”

“That last thing overtaxed Californians need is another tax—in fact, these numbers are dangerous in the wrong hands,” said Vice Chair George Runner. “A broader reliance on sales tax would only make sense if it allowed us to eliminate California’s onerous income tax. My hope is this report will stimulate much-needed conversation on how we can make taxes simpler for all Californians and attract more jobs and investment to our state.”

“Tax reform should be an incentive, not a covert word for job killer,” said Board Member Diane L. Harkey. “The best tax reform is job growth which would create more taxpayers, more revenue to the state, and a boost for California’s job seekers and creators.”

The revenue estimate, a fact sheet, and a spreadsheet with additional data are available online. Visit OPEN BOE to find other publicly available BOE data.

Runner: Report is ‘Dangerous in the Wrong Hands’

[George Runner] – Board of Equalization Vice Chair George Runner today responded to a report that the State of California could reap up to $122.6 billion in additional revenue by imposing sales and use tax on services.

“I’d consider a broader sales tax only if it’s part of revenue neutral tax reform, such as abolishing California’s income tax and the Franchise Tax Board, along with other taxes that destroy jobs,” said Runner. “I hope this report stimulates conversation about how taxes can be simpler, and how we can attract more jobs to our state.”

Runner strongly opposes Senate Bill 8 (Hertzberg), which would impose a $10 billion tax increase on service industries. But last month, Runner signaled he would be open to scrapping California’s income tax in favor of a greater reliance on consumption-oriented taxes. He’s also called for dynamic economic modeling that would show the benefits of such a change.

“The size and scope of California’s service-related industry is mind-blowingly large,” said Runner. “The last thing overtaxed Californians need is another tax. These numbers are dangerous in the hands of legislators who want to raise taxes.”

The revenue report was produced by the Board of Equalization Research and Statistics Section at the request of the Senate Governance and Finance Committee.

Elected in November 2010 and re-elected in 2014, George Runner represents more than nine million Californians as a member of the State Board of Equalization. For more information, visit www.boe.ca.gov/Runner.