For several decades, the American economy has shifted from producing consumer goods to providing services. As a result, states that tax the purchase of goods but not the purchase of services will increasingly find themselves unable to raise the revenue needed to support public services.
The Center on Budget and Policy Priorities released a report this week that explains why states should expand their sales tax bases to include services. The report offers various reasons why taxing services is a good policy prescription including: increased short- and long-term revenues, the potential for less volatility in the sales tax, and the potential for more administrative compliance.
A helpful discussion of the pros and cons of taxing business-to-business services is also included. Advocates interested in knowing how much revenue could potentially be raised from expanding the sales tax base to include services will also find the state-by-state estimates included in the paper very informative.