I learn from Facebook that the state legislature's interim committee on taxation sat down yesterday to look at state tax exemptions that we could close to fund education and other programs or even to ease other tax burdens. Apparently the majority of the committee took 84% of that potential revenue off the table and yesterday considered only (well, "only") $86 million worth of tax exemptions. And the potentially impacted industries are fighting hard to keep those exemptions.
Some of the big exemptions still on the table are advertising, agricultural fertilizer, and farm machinery parts and repairs. Curious: can anyone offer a coherent reason why we should pay no taxes on those specific goods and services but continue to pay taxes on things like cell phone service, potting soil, or belt sanders? If the argument is that somehow the currently exempted goods and services play a uniquely vital role in the South Dakota economy, might we not run down the rabbit hole of claims that the clothes I wear to my classroom, or home internet service I purchase (CenturyLink! hurry the heck up!) to access my classroom documents after hours via cloud computing, or the bicycle tires I buy to ride to class are just as essential to sustaining the South Dakota economy? After all, if my kids don't learn French, how will we ever communicate with our business partners in Québec?
Given the fiscal straitjacket in which our governor and Legislature have placed our fair state, we can only wish they would at least impose austerity on all industries equally.
Let me make two arguments:
1) Sales tax exemptions are like income tax credits:
a) They encourage an activity that betters the general welfare. This then leads to the political question: Can government make such a broad determination and should they be picking who wins/loses or what is good/bad?
b) They help a segment of the population/economy that is critical to the rest of the population/economy. Few would disagree with agriculture's central importance to the well-being of virtually everyone in South Dakota (even Sioux Falls). Or the exemption for charities.
2) Exemptions consider the total taxation of the sector. This is the best justification for agriculture exemptions considering their burden on property taxes.
Don't get me wrong. I don't agree with every exemption. Nor do I think even those exemptions I agree with shouldn't be reviewed periodically.
Let us tax everything at 10% and abolish property taxes completely. And then go to the federal level and abolish the Federal Reserve, eliminate the Income tax, and go to excise taxes as we did at the founding.
Tax exemption arguments for advertising services come in several flavors, from 1st Amendment rights to double taxation, and a few others. The long and short of it is that the media will go berserk if you ask them to become tax collectors.
Here is the official "industry" position.
It is not dissimilar to Troy's #1 and 2. Just more specific.
http://www.aaf.org/default.asp?id=366
Excerpt:
"A tax on advertising services or placement increases the cost of advertising. Because most clients operate on a fixed advertising budget, they will compensate for the tax by decreasing their advertising purchases. This will have a direct—and negative—impact on the advertising industry, economy and state revenues. Advertising is the engine that fuels the economy. Less advertising means fewer sales. Fewer sales mean reduced revenue and fewer jobs. Fewer sales also result in less sales tax revenue for the state. Advertising is a legitimate cost of doing business and not the type of end-use consumption targeted by sales taxes."
I would think that Spanish would be the more pragmatic choice of language to learn rather than French since we have a greater Hispanic population than a French Canadian one.
What do your students think?
I'm not sure if that is Mr. Fleming's position on the matter, or if he is just pointing out the AAF position. But it seems to me that the same argument could be made for any sales tax applied to anything used by a business or a person for that matter!
S.Hart. Not really. Advertising is not "consumed" by an end user in that the customer doesn't really pay to see it. It is part of the cost of sale.
Here's a puzzle for you. If I write your ad for you, shoot and edit the video and put on the air, you're saying I should charge you tax for writing and producing your ad and the TV station should charge you (or me?) tax for renting dead air space on their broadcast station, right?
So what if you write your own ad and put it on Facebook or YouTube? Do you charge yourself tax? And if so, for which services?
See? It gets tricky.
That said, I used to be much more militant about protecting my clients legal right on this issue than I am now, mostly because a lot of them told me they would pay the tax if they had to. No big deal, it just meant they wouldn't advertise as much in South Dakota. So no, it's not really MY argument as much as it is a general economic argument. Would the tax depress the economy or not? I'll trust Troy to weigh in on that. It's not really my area.
p.s. It does seem to me that it will be hard for the State to collect revenue on internet advertising, which is where more and more folks ad dollars are going these days.
As far as fertilizer and farm machinery you have to look at a few things. 1 is how much that would cost the farmer. A farmer that as 1000 acres could put on $150,000 a year on fertilizer. If you start to tax it you could cause a farmer to cut back on fertilizer and then have poorer yield. and on and on and so on.
The bigger problem though is that the neighboring states don't tax it. Many farmers have semi's these days and considering a semi load could have close to 2K worth of sales tax on a load you could have many farmers choosing to bootleg fertilizer from out of the state.
As far as tractor repair and parts you have the same thing. If you live in Sioux Falls and need 50K worth of repairs/parts why not go across the border and have the neighboring state's repair shop work on it.
Sometimes I wonder if I'm really a Republican according to the current definition.
In my opinion, this panel went in exactly the wrong direction in an attempt to raise revenue.
No wonder they came up with nothing of substance.
My proposal would involve raising the sales tax by a fully penny but exempting groceries, and not touching (or discussing) any other exemptions for now.
I suspect that this proposal, if put to a public referendum, might pass. Anything else of substance that I've seen so far would most likely fail.
Of course, the public might not think we need any more revenue at all, and will deafly shout "Cut! Cut! Cut!" Maybe they'd be right.
Stan, that is the other Stan's plan too, man! (Adelstein)
I think any removal of exemptions that increase government revenue should go to tax relief. If this exemption discussion support spending a dime more anywhere, I am opposed. Period.
Troy, I think I get what you're saying, but can you clarify? Are you saying that if (for example) the sales tax on advertising exemption was removed (some people would call that a tax increase) it should go to reducing people's property tax (instead of funding education, or creating infrastructure jobs for example?)