As state lawmakers cruised passed session’s so-called halftime, a new report cast a long shadow over Hoosier small business owners’ future: a report suggesting that expanding the Indiana’s sales tax to services would pad state coffers with an extra $5 billion annually.
“In recent decades, household consumption expenditure has shifted away from taxed goods and towards untaxed services,” according to Indiana Fiscal Policy Institute’s John Ketzenberger. “This is the outcome of changing household behavior over the years. The untaxed service share has increased while the goods share has fallen, playing a major role in the state’s dwindling sales tax base.”
But amid the problems the expansion would solve, expanding the sales tax to services would also create many more problems for the state’s small business owners. Small business owners “may have compliance problems,” the report admits. “Businesses would no longer have an incentive to bill separately for parts and labor,” which could impact revenues for auto body repair shops and other small businesses, according to the report.
The report does consider the possibility of an exemption for certain small businesses, including participants at farmers and flea markets. But that’s cold comfort for the vast majority of small business owners across the state, who would lose revenue and suffer endless compliance headaches if policymakers adopted such a proposal.
