Lawmakers take aim at items exempt from sales ta

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Lawmakers take aim at items exempt from sales ta
May 31, 2010
By PEGGY FIKAC
Chron

AUSTIN — From car washes to tattoos to bottled water, the list of items and services exempt from the sales tax totals $30 billion in forgone revenue — a tempting target for some lawmakers as the state faces a budget gap as big as $18 billion.
Take aim at a tax exemption, however, and you quickly will find interests circling the wagons to preserve it, plus lawmakers resistant to raising money in a piecemeal fashion or increasing tax revenue at all.
“There are some easy ones (exemption eliminations) that I think Texans and a bipartisan group of House members would support, but I think people need to have the reality check of what we are facing before they will look at this as an alternative to drastic cuts,” said House Ways and Means Committee Chairman Rene Oliveira, D-Brownsville, whose panel has been studying exemptions. “Do I think a majority of the House is ready to say yes to this? No.”
Oliveira's plowing ahead with his work, which has included determining the policy reason for each exemption and whether that reason remains valid. Other lawmakers have joined in seriously discussing the idea of removing some exemptions.
Off-limits exemptions
House Appropriations Committee Chairman Jim Pitts, R-Waxahachie, has said Oliveira told him that “he thinks he can bring in $1 billion,” but publicly cited only the tattoo exemption as an example — noting wryly, “that won't bring in $1 billion.” Still, Pitts said, “I think tattoo parlors will probably be paying the sales tax.”
The $30 billion value of 2009 sales-tax exemptions is bigger than the $21 billion in sales tax collections that year. Of the exemptions, $8.1 billion are on items taxed by other laws. Another $10.1 billion is for materials used in manufacturing. Various services have exclusions estimated at more than $5.3 billion.
Some exemptions are likely to remain off limits, Oliveira conceded.
“Certainly a sales tax on food, medicine and providers of medical services would probably not receive any serious consideration.”
But just about everything else is on the table for consideration, he said, raising alarms for those potentially affected. The state sales tax rate is 6.25 percent, and local taxing jurisdictions may impose additional sales taxes of up to 2 percent.
“Other states also have sales tax exemptions for materials purchased for manufacturing research and development. Texas needs its existing manufacturing sales tax exemption just to stay competitive,” said Luke Bellsnyder, of the Texas Association of Manufacturers.
Ronnie Volkening, of the Texas Retailers Association, said his group wants to preserve the tax exemption for bottled water, which it views as a food product. Extending the sales tax to such services as accounting could drive some businesses to seek providers outside Texas.
“It does affect the bottom line of any business,” he said.
Tattoos, tans, piercings
Imposing the state sales tax on tattoos, tanning and body-piercing would mean an estimated $4.8 million a year, according to the state comptroller's office. Tattoo artists and their studios do not like being singled out any more than would the largest industry with the priciest lobbyists pounding the Capitol hallways.
“That's going to really upset me, actually. That will affect me financially,” said Antone Pham, a tattoo artist at the Texas Tattoo Emporium in Houston. “People already complain about how much tattoos cost sometimes. I'm going to tack a tax on to that? That's going to make it harder for me to even make money.”
Senate Finance Committee Chairman Steve Ogden, R-Bryan, said any change in exemptions should be part of an overall tax reform effort and should be revenue-neutral, meaning any additional money raised would be used for something such as lowering the tax rate. While that could bring in more money long-term by virtue of a broader base and more efficient collections, it would not help the looming budget problem.
“The best way to mess this up is to start talking about specific exemptions right now. It's got to be put together in some sort of coherent package, where there's give and take. You can't just pick 'em off like they're targets in a shooting range,” Ogden said. “Almost surely going into next session, any kind of sales tax reform, at least initially, would probably have to be revenue neutral, or it won't pass. Nobody's out there, Republican or Democrat, campaigning and getting elected on the notion that our problem in Texas is our taxes aren't high enough.”
What constitutes a tax increase is open to debate, Oliveira said.
“Taking away an exemption from someone who no longer deserves it isn't a tax increase.” he said. “I just don't see how we can, at this point, bind ourselves to being revenue-neutral, when we have not seen the drastic cuts that are going to be required to deal with an $18 billion deficit. I couldn't agree to that now.”
Perry's no-tax pledge
Oliveira's committee was instructed to examine major tax exemptions by House Speaker Joe Straus, R-San Antonio, who also has told budget writers it is imperative to close the budget gap without new taxes.
Gov. Rick Perry, who has signed an anti-tax-increase pledge, “is confident lawmakers will balance the budget without raising taxes, just like they did in 2003” when faced with a big budget gap, said spokeswoman Allison Castle.
Democratic candidate for governor Bill White has said he looks forward to seeing the House panel's report, said spokeswoman Katy Bacon. She said it was difficult to comment on specific tax exemptions “without the full picture.”