Taxing for services will not have a “big impact” on businesses

Sales tax is in the news in North Carolina; the stories about sales tax on services, which is being proposed in the State Senate, are simply funny, especially those which quote the business owners who will have to charge sales tax. Take for instance Rhonda Scarboro, the owner of The Soapy Dog in Knightdale NC who thinks that a 6.75% sales tax on top of a $45 fee for a doggie trim and bath will cause the canines from returning often. “It would have a big impact,” she said in a story written by Colin Campbell in today’s The News & Observer.

Really? A big impact? The 6.75% sales tax on a $45 fee is a whopping $3.04 additional, and anyone who can afford to pay for a $45 for cutting dog hair and giving the dog a bath can afford the $3.04. it’s doubtful The Soapy Dog will lose any business. The total is still under $50 and three times the cost of my periodical haircut at Man Mur Barbershop in Raleigh. My $16 cost could go up to $17.08. Wow! At one a month, that's $12.96 a year, so it’s doubtful there will one less haircut a year.

Then, there’s James Melcher who owns A1 Expert Autocare in Angier who thinks a sales tax on his customer’s invoices amounts to a double tax. Currently, he should be collecting and submitting sales tax on the parts he supplies for the cars he services, so the new sales tax will be on the labor he supplies, an income on which he pays income taxes. “You’re taxing twice on the same amount of money,” he told The N&O’s Campbell. “That would really hurt our business. That’s make people back up a long ways.”

While on paper, it may appear there’s a double tax on the labor, in reality it’s probably not the case. If he charges $50 an hour labor, it’s doubtful he pays income tax on the entire amount after his account gets through all the self-employed tax deductions he has, and his state income tax rate should be going down anyway. The sales tax will be on the entire amount which is just $.07 per dollar of labor. So, a $50 hourly fee is now $53.50, or thereabouts. He'll be servicing just as many cars as before the sales tax law if it passes.

Small business owners such as Mr. Melcher are against sales tax on labor (services) which will be paid by the customer, not by the business owner. It should not hurt business at A1 Expert Autocare as long as Mr. Melcher offers superior workmanship in a timely fashion. He and Ms. Scarboro, who beautifies dogs, must remember their competitors will also be collecting sales tax from the customers and submitting it to the State.

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