Missouri voters consider a constitutional ban on taxing services; It’s a familiar conversation, here and in many other states

The Seattle Time today runs an Associated Press story on an unusual constitutional amendment on the November ballot in Missouri.

Missouri voters will be the first in the nation to decide whether to amend their state constitution to prohibit sales taxes from being expanded to services such as auto repairs, haircuts, legal work and financial accounting.

The proposal on the Nov. 8 ballot is a backlash against efforts in numerous cash-hungry states that have considered extending sales taxes beyond goods to keep pace with the service-based economy.

As the AP reports, it’s a common theme across the country, often couched in references to a restructuring of the economy. Stateline reported in February,  

As sales tax collections slow and the nation becomes a service-based economy, many states are considering expanding the universe of goods and, especially, services that are subject to the sales tax.

This may surprise some readers.

Six states — Delaware, Hawaii, New Mexico, South Dakota, Washington and West Virginia — tax services broadly

Stateline continues,

But even in those states, there are routine calls for exemptions.

It’s a perennial here, though the last major attempt to expand the state’s taxation of services occurred nearly a quarter century ago. It failed. But in recent year’s, taxing services has again been promoted as a source of new revenue.

The Council on State Taxation in 2013 published an analysis of the effects of taxing services, “What’s Wrong with Taxing Business Business Services?” As the title makes clear, COST’s focus was on business services, which are generally the targets of legislative proposals to extend theses tax base. The COST brief, which should be required reading for policymakers considering such taxes, concludes

Current proposals in a number of states to expand the sales tax base to include a wide-range of services would compound the problems associated with imposing sales taxes on business-to-business sales. In particular, a large share, in the range of 70% to 80% based on Ernst & Young estimates and in some cases state bill analyses, of the additional state sales tax revenue expected from the adoption of these proposals would be collected from business-to- business sales of services. Taxing services that are pri- marily consumed by business, as well as taxing additional business-to-business sales of products, would create more pyramiding, increase distortions in after-tax prices of different goods and services, and reduce the competitiveness of in-state companies, adversely affecting a state’s eco- nomic development efforts.

The AP reports that in Missouri,

The campaign has drawn support from a broad coalition, including associations for accountants, attorneys, banks, funeral homes, newspapers and broadcast media.

There’s no clear sense of where the voters stand, but experience elsewhere suggests the ban may be popular.

How voters will react remains unclear. There is scant public polling on the ballot proposal, although focus groups have shown some voter confusion over the wording of the measure.

A similar idea was proposed in Florida after legislators in 1987 expanded the sales tax to dozens of services that included construction and advertising. But the petition drive for that ballot measure subsided after lawmakers repealed the services sales tax just six months after it began.

During the past decade, Maryland, Massachusetts and Michigan also have quickly repealed expanded sales taxes on services in the face of public disapproval.

We’ll be watching the Missouri results with interest.