New tax bill may impact small business

Proposed reform to impose sales tax on services
By: Art Garcia for The Telegraph
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How much do you know about Senate Bill 8, currently awaiting a hearing in the California senate? Not much? Never heard of it? Neither have most small businesses, operations that would be heavily affected by passage of its proposed tax reform.

Submitted by Democratic State Senator Robert Hertzberg of Van Nuys, the bill, which is titled the Upward Mobility Act, has yet to be assigned to a committee for hearing, but that should happen within a few weeks, and likely will go to the committee chaired by Hertzberg, the Senate Committee on Governance and Finance.

SB 8 would be a $10 billion sales tax on services, the California economy’s fastest growth sector, and would apply to everything from accounting and gardeners to muffler shops and restaurants. It would lessen the state’s current sales tax but not eliminate it.

Healthcare and education services would be exempt. So would small businesses with less than $100,000 in sales - window washers and baby sitters, for example.

If passed into law and enough money was generated by taxing services, state personal income taxes would be reduced and so would corporate taxes under Hertzberg’s measure.

He points out 90 percent of corporations in the state are small businesses, such as auto repair shops, “and maybe corporations of under $5 million wouldn’t pay at all.”

Hertzberg’s bill would need a two-thirds vote in a senate that no longer has a Democratic super majority to raise taxes. If passed, the bill still would need Governor Jerry Brown’s signature.

A California Board of Equalization study of the bill released last week indicated the state annually could receive between $60 billion and nearly $130 billion in total state and local revenue by taxing certain services.

Hertzberg, a former speaker of the state Assembly, said California’s existing sales tax “currently captures about 30 percent of what it could. California is subject to boom and bust budget cuts, partly because of California’s inability to capture taxes on services.”

The $10 billion from taxes on services the bill would raise, he said, is revenue the state badly needs for public higher education and infrastructure.

The exemption of small businesses making up to $100,000 a year is no big deal, said John Kabateck, California executive director of the National Federation of Independent Businesses. “Unfortunately, these days that’s about the equivalent of a paper route.

“If we’re going to have an honest discussion about California’s tax system we shouldn’t begin that process by placing fear and uncertainty in already struggling small mom and pop businesses,” he said.

“California already has the highest sales, income and gas taxes. Why are we adding insult to injury when we need to get people working and Main Street humming again?” asked Kabateck, whose NFIB has about 21,000 small and independent business members in California and 340,000 members nationally.

Locally, essentially no merchants contacted by the Telegraph had heard of SB 8 or knew much about it.

“As a general rule, it doesn’t sound like something we’d be very excited about. We’ll comment and take a position after the bill is in its final version,” said Joe Galiardi, president of the Folsom Chamber of Commerce.

Debbie Manning, president and CEO of the El Dorado Hills Chamber of Commerce, said she was unaware of the bill.

“Our policy typically would be not to support any kind of tax on business,” she said.

Tina Ferguson, owner of Face In a Book in the El Dorado Hills Town Center, hadn’t heard of SB 8 but believes she has “a really good working relationship with the community, especially the school districts. I’d rather work directly with the schools than have additional taxes imposed on me.”

Gary McConnell, co-owner of the Cartridge World stores in El Dorado Hills and Rancho Cordova, said he’s “somewhat” familiar with SB 8, which he calls “another tax and another financial burden on small business owners. I’m not in favor of it.”

Cynthia Breazeale, co-owner of Snap Fitness in El Dorado Hills, was unfamiliar with SB 8 but said it would be “so devastating to so many” small businesses. “It appears it would be a price increase for consumers on services they have been receiving for years without the tax.”