Tax Reform simplifies tax code with Sales Tax

The changes to the state’s sales tax aren’t the same that was proposed earlier this year.  Many of the previous proposals included an expansion of the sales tax base and then a lowering of the overall rate.  This plan does expand the base a small amount, but keeps the sales tax rate untouched.

One of the goals of tax reform was to remove some of the complications in the tax code.  Certain items are taxed through a combination of taxes, making tax revenue less transparent.  In efforts to make taxes more transparent and remove unnecessary tax code, many taxes were consolidated into the sales tax category.

The taxation of electricity and natural gas are great examples of how the tax reform package is simplifying the tax code.  In current law, the franchise tax is responsible for the taxation of electricity and a special excise tax for piped natural gas.  In both of these taxes, a percentage of the tax collected by the state is then sent to the local municipalities.  This tax plan removes these two provisions and makes natural gas and electricity both taxable under the sales tax.

Below are the specifics of the sales tax, as found in the tax reform plan:

Effective January 1, 2014:

• Repeal gross receipts tax on live entertainment and movies, puts in sales tax base, adds amusements for which an admission is charged
• Repeal exemption for nutritional supplements sold by chiropractors
• Repeal exemption for certain sales of newspapers
• Repeal food sold in dining rooms operated by educational institutions
• Expand sales tax to include service contracts (warranties)
• Tax on manufactured homes at the state rate
• Tax on modular homes at the state rate

Effective July 1, 2014:

• Make electricity subject to combined general sales tax rate
• Make piped natural gas subject to combined general sales tax rate
• Distribution to municipalities for franchise tax and piped natural gas
• Repeal sales tax holiday
• Repeal energy star sales tax holiday
• State and local non-profit refunds capped at $45 million
• Repeal exemption for certain bakery items
• Add a gross receipts requirement for farmers of $10,000 for the purpose of receiving tax exemptions and refunds

The total impact for the sales tax revenue to the state budget is listed below.  These figures include the shift of electricity and natural gas tax from other tax sources to the sales tax, making the amount look larger than it actually is.  For example, the total electricity tax shift amounts to $157 million in 2015, making the sales tax figure inflated when that tax is just shifting in its categorical name and not in the amount collected.