CalChamber Opposes Plan to Impose Tax on Services

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A recently identified job killer bill that would impose a 3% tax on services purchased by businesses in California was discussed this week as a special order of business in the Senate Governance and Finance Committee.

SB 993 (Hertzberg; D-Van Nuys) has been identified by the California Chamber of Commerce as the 28th job killer bill. SB 993 is a job killer because it adds another layer of taxes onto California companies, raising costs, and puts them at a competitive disadvantage.

CalChamber Policy Advocate Sarah Boot explains to the Senate Governance and Finance Committee on May 16 why the services tax proposed in SB 993 (Hertzberg; D-Van Nuys) is a job killer that will hurt small businesses and add another layer of taxes when California already has the 48th worst state business tax climate.

Small Business Hit

The negative impacts of SB 993 will hit small businesses the hardest. Although the bill has a limited exemption from this tax increase for certain small businesses, it certainly does not protect all of them. Small businesses depend on the services included under SB 993 to conduct their operations.

Although larger businesses will be able to avoid paying taxes on certain services by bringing them in-house, most small businesses will not be able to do so.

The burden of complying with this new tax will also be more challenging for small businesses that provide services—as they likely have limited resources to set up a new tax system within their companies. Additionally, such small businesses could suffer a loss of customers and revenue due to higher prices for their services.

Even though SB 993 focuses on business-to-business transactions, and attempts to avoid raising taxes on individuals, it would increase the costs of producing and selling goods here in California. These increased costs ultimately would be passed on to consumers—with the higher prices having a disproportionate impact on working families.

Competitive Disadvantage

SB 993 will unquestionably put California businesses at a competitive disadvantage. For businesses that must purchase services, this new 3% tax has no counterpart in the vast majority of other states, and will instantly add another anti-competitive burden with no countervailing competitive benefit. These companies would need to increase prices, reduce expenses—or perhaps relocate—to accommodate this new burden.

If the new services tax is adopted, any other state in the country will have a more business-friendly tax environment than California and lower prices for the services covered. California does not need another disincentive for businesses to stay in California, locate in California, or grow in California.

Action Needed

The ramifications of SB 993 will be discussed again by Senate Governance and Finance on June 13. Committee Chair Mike McGuire (D-Healdsburg) said the hearing will include a panel of experts in order to do a “deeper dive” into the issue of taxing services.

CalChamber is urging members to contact their senators and members of the committee and tell them to oppose SB 993 as a job killer.

Staff Contact: Sarah Boot

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Sarah Boot
About Sarah Boot
Sarah R. Boot joined the CalChamber in March 2018 as a policy advocate specializing in privacy/technology, telecommunications, economic development, and taxation issues. Before joining CalChamber, Boot was a top adviser to now-Senate President Pro Tem Toni G. Atkins, serving as the senator’s legislative director and as lead staffer on legal, privacy, telecommunications, business, and technology issues, among many others. Boot also was principal consultant to Atkins during her time as Assembly Speaker and Speaker Emeritus. For three years, Boot was an assistant U.S. attorney in the Southern District of California. She prosecuted a broad array of federal crimes, including bank robbery, sex trafficking of minors, and narcotics trafficking. In private practice, Boot spent three years litigating complex civil and intellectual property litigation, primarily representing Internet and technology companies. Boot earned her J.D. from the University of Michigan Law School. She graduated from the University of Michigan with an honors degree in political science and a minor in Spanish