Tax Threat 3: Arbitrary Sales Tax on Services
May 26th, 2015
The third threat to state revenue outlined in MEPC’s 5 Threats to Mississippi’s Tax System is the increase in purchases of services that are not subject to state sales tax. Mississippi relies heavily on the taxation of goods – items such as food, clothing, and motor vehicles – to pay for state services. Mississippi ranks among the top 10 states in the amount of sales tax revenue as a percentage of personal income. A sales tax of 7% is applied on the purchase of all goods unless they are specifically exempt in law.
In contrast to goods, services are only subject to sales tax if they are specifically listed in the sales tax law. Some taxed services in Mississippi include dry cleaning, vehicle and air conditioner repair, car washes, and amusements such as bowling. Services not taxed include salon, pool cleaning, dog grooming, interior design, travel, lawn care, legal and accounting, and more. The exclusion of certain services not only causes the state to lose untaxed revenue, it also creates a competitive advantage for businesses exempt from sales tax.
Over the past several decades the purchase of goods, such as clothes and household items, has decreased compared to the use of services. A comprehensive sales tax could be implemented on all services unless specifically exempt. This change would update the state’s tax system to reflect changes in the economy and could raise as much as $300 million a year in revenue.
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