The Arizona Association of Realtors is trying to forever block state lawmakers from expanding the state sales tax.
An initiative launched Friday proposes to constitutionally prohibit a sales tax from being imposed on services. Backers need at least 225,963 signatures by July 5 to put the issue on the November ballot.
With few minor exceptions, there is no such levy now. Instead, this would take that issue off the table even as lawmakers may have to look to expand the sales tax base, particularly as consumers move from purchasing tangible items to buying services online.
The campaign is being run under the Banner of Protect Arizona Taxpayers. Wes Gullett, a campaign consultant, said the initiative will be “supported by small businesses that are concerned about a potential huge tax burden.”
But Gullett said that group is getting all its cash from Citizens for Fair Tax Policy. And reports filed with the Secretary of State’s Office show the entire $1.1 million in that account comes from the Realtors Issues Mobilization Fund, an arm of the organization.
The Realtors are no strangers to this type of preemptive strike. A decade ago the group convinced voters to ban imposition of a real estate transfer tax.
Arizona did not have one at the time. But the group said the move was necessary to keep lawmakers, potentially looking for new sources of revenue, from deciding a transfer tax was appropriate.
That same logic is reflected in publicity materials already being released by the group.
Its web site says there was a measure introduced this legislative session to tax services, though that measure went nowhere. But it also mentions that North Carolina and Washington have imposed taxes on some sales.
“The threat is real because politicians share bad ideas, and sales tax on services is a bad idea for all Arizonans,” the web site claims.
The group would provide only prepared statements.
“We pay plenty of taxes without adding new taxes on buying a home, cutting your hair, getting your car fixed or even taking your pet to the veterinarian” said real estate agent Holly Mabery who chairs the effort. And James Emch, chief executive of Valley Child Care and Learning Centers, said that a service tax “would increase the cost of childcare adding an unfair burden on working families.”
The initiative came as a surprise to House Speaker J.D. Mesnard.
“I’ve not been looking at taxing services in any reform I’ve been working on this session,” the Chandler Republican said. “I don’t know of other efforts to go down that road, either.”
But Mesnard said that doesn’t mean he will support constitutionally barring lawmakers from ever considering it, particularly as the economy changes.
“I certainly don’t like having our hands tied,” he said. And the speakers said there is a political risk for the Realtors going forward now with a preemptive strike.
“I suppose there’s a possibility that it fails,” Mesnard said, essentially a message that voters have no problem with taxing services. “It could backfire a bit.”
Sen. Steve Farley, D-Tucson, who has urged colleagues for years to review sales tax exemptions, said no one, including he, has ever urged taxes on things like child care and veterinary services. And he said if anyone wants a carve-out for specific items like this they should be considered and debated at the Capitol one at a time.
“Then the public gets to weigh in and lawmakers get to weigh in and we make a decision the way we do in a representative democracy in our Legislature,” Farley said.
But he also lashed out at the Realtors for seeking to forever take a potential source of revenues off the table.
“Do they not need good roads, good fire and police protection, good schools to sell their houses?” he asked.
“They’re cutting off any ability of people to fund that stuff in the future as the economy changes,” Farley continued. “Realtors used to support efforts to try to improve our communities instead of just try to take away any tools we have.”
There’s a lot out there that’s untapped if lawmakers find that people are buying fewer actual goods in favor of services. The Department of Revenue estimates that if all services were taxed it would bring in another $5 billion a year — more than the current sales tax on products now provides for the $10.1 billion budget.
Some is driven by technology.
For example, at one time someone who wanted a word processing program would go to a store and buy it on disks. Now there is an option to simply lease the service, with the actual program on a “cloud.”
Farley said it doesn’t stop here, speculating that revenues from car sales could plummet as people instead choose to subscribe to a service that provides a vehicle on demand.
But other untapped — and untaxed — services range from doctor visits at $454 million and legal services at $185 million to travel agents at $70 million, beauty salons at $18 million and $2 million paid to diet and weight loss centers.
Selected services now exempt from sales taxes:
Hospitals — $810.1 million
Doctors — $454.0 million
Legal — $184.9 million
Securities brokerage — $116.8 million
Auto repair and maintenance — $105.3 million
Accounting, tax prep, bookkeeping — $82.0 million
Travel arrangement and reservation — $69.9 million
Advertising, public relations — $41.2 million
Waste collection $39.0 million
Investment advice — $35.6 million
Technical and trade schools — $31.8 million
Child day care — $22.1 million
Beauty salons — $18.7 million
Chiropractors — $13.7 million
Parking lots and garages — $11.0 million
Death care services — $9.3 million
Pet care (not veterinary) — $3.5 million
Nail salons — $3.1 million
Barbers — $558,000
— Source: Arizona Department of Revenue