Amendment 4: No Sales Tax on Services

Only a few more weeks remain until the Nov. 8 election.  Unless you are big fan of political commercials, yard signs, mudslinging, and robocalls, you are ready to for it all to be over.  Patience.  The end is near.

Amendment 4 proposes to prevent any future laws that would create a sales tax on services at the state, county, or city level.  The actual language that would be added to our Missouri constitution would be:

“Section 26. In order to prohibit an increase in the tax burden on the citizens of Missouri, state and local sales and use taxes (or any similar transaction-based tax) shall not be expanded to impose taxes on any service or transaction that was not subject to sales, use or similar transaction-based tax on January 1, 2015.”

In Missouri, consumers pay sales tax on tangible goods, but not labor and services.  For example, if you take your car to a mechanic who replaces your water pump, you will pay sales tax on the water pump, but not on the mechanic’s labor.  This is different than Kansas where consumers pay sales tax on both parts and labor.  Entertainment events (ball games, movie tickets, etc.) are deemed a luxury and are sales taxable, but health and education (college tuition, exercise classes, etc.) are deemed a necessity and not taxable.

It is always wise to find out who is behind these proposals and what their motivations might be.  The group behind Amendment 4 is called Missourians for Fair Taxation (MFT), which is funded primarily by real estate agents, with bankers and lawyers offering verbal support.  Understandably, these industries derive income from services, and so do not want local or state sales taxes charged on their invoices as it might hurt their business.

On their web site, MFT makes the statement “Legislation that could lead to expansion of the sales tax base to include services has been introduced in the last seven sessions of the Missouri General Assembly. And unelected bureaucrats at the Missouri Department of Revenue are currently interpreting laws to expand sales taxes to include every day services without a vote of the people.”

It is true that a bill has been filed to charge sales tax on services since 2009.  However, those bills would have also eliminated the income tax and been revenue neutral.  Also, a bill must cross six major hurdles to become law.  The 2009 bill made it over four of the six hurdles.  But since then, subsequent bills have crossed only one or zero hurdles, so were never a threat to pass.

It is also true that the Department of Revenue (Missouri’s state version of the IRS), at the behest of Gov. Nixon, started treating yoga classes, Zumba classes, and the like as entertainment instead of education just so they could be sales taxed.  It was a way for the governor to raise taxes without a vote of the people or the people’s representatives in the legislature.  However, last session our General Assembly passed a bill to officially treat exercise classes as non-taxable, defying Nixon’s shenanigans.

Knowing the personality of our state legislature, Amendment 4 doesn’t seem to be fixing any current or impending problem at the state level.  Where Amendment 4 might have an impact is preventing sales taxes on services at the local level in cities like KC and St. Louis.  Those left-leaning areas tend to favor higher taxes with bigger government, and that is their local level choice.

One last bit of trivia.  The bill that would have replaced the income tax with an expanded sales tax would have implemented what was nicknamed the “Fair Tax.”  The group that is sponsoring Amendment 4 against the Fair Tax calls themselves “Missourians for Fair Taxation.”  I guess there are differing opinions on what “fair” means.

For more info on Amendment 4, visit tinyurl.com/zp3hq3v.  For info on all ballot measures in November, visit www.sos.mo.gov/petitions/2016BallotMeasures.