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Friday, Sep 29, 2023

Biting Back

Mark Nunez is used to treating all sorts of sick animals, from dogs with worms to cats torn up in a fight.

His business has thrived over the years. After all, most owners will spare no expense when it comes to sick pets.

At least, they used to. The Van Nuys veterinarian has noticed recently that more financially strapped clients have stopped getting medical care for their pets and some even have abandoned them.

And now, Nunez has a new worry: a proposal from Gov. Arnold Schwarzenegger to extend the state sales tax to veterinary services. That will add more than 10 percent to pet medical care bills as early as March 1.

The proposal is part of a plan to bring in billions of dollars in additional revenues to help close the state’s $42 billion budget deficit over the next 18 months.

“Veterinary hospitals certainly are not going to absorb these costs, so that means that people with pets will have to make some difficult choices,” said Nunez, a co-owner of Animal Medical Center Inc. “More people are simply going to abandon their sick pets because they can’t afford to care for them.”

Nunez, who takes over in July as president of the California Veterinary Medical Association, is one of a growing chorus of business and industry leaders opposing the governor’s plan to target industries for more tax revenues.

The plan extends the sales tax to several industry segments, from auto repair shops to amusement parks. It also calls for a 10 percent oil extraction tax and a “nickel-per-drink” increase in the alcohol excise tax.

Moreover, the plan would simultaneously raise the statewide base sales tax 30 percent to 6.5 cents per dollar from 5 cents per dollar for the next three years. In many parts of Los Angeles County, where voters have approved additional taxes for transportation and other projects, the total sales tax would add up to 10.25 percent.

All told, the state projects that the increases would raise $2.6 billion in revenues for the current fiscal year ending June 30 and $8.3 billion for the 2009-10 fiscal year.

“Expanding taxes to cherry-picked services is putting businesses in a frightening position,” said John Kabateck, executive director of the California chapter of the National Federation of Independent Business, a small-business trade group. “They are looking at steep unanticipated costs that they haven’t budgeted for and at a time when they are already under extreme pressure from the recession and scrambling unsuccessfully to get loans.”

Taxing times

As a result, business leaders are scurrying to find ways to halt or at least slow the proposals.

The golf industry has formed an unprecedented alliance to thwart the governor’s plan to tax green fees, golf club dues and related services. Auto body shops have begun faxing letters to the governor and have planned a statewide meeting for early next month to plot further strategy. And the oil industry is marshalling its forces to defeat a proposed 10 percent tax on oil extracted from California territory.

All in all, the Schwarzenegger revenue plan would extend the sales tax to seven industry segments: auto repair shops, furniture and appliance repair services, amusement parks, sporting events and golf courses, and veterinary services.

According to H.D. Palmer, spokesman for state budget director Mike Genest, these industries were selected because most already pay some sales tax. For example, in auto repair shops, the state already taxes the sale of parts; under this proposal, labor would also be taxed. “The framework for sales tax collection is already there,” Palmer said.

To offset the negative impact all these tax increases would have on business, Schwarzenegger has proposed easing a number of state laws and regulations on business, ostensibly to help stimulate job creation and boost the state’s sagging economy. These include the repeal of the daily overtime pay requirement, more flexibility on providing meal and rest periods for workers and easing of environmental regulations on some major new infrastructure projects.

All of these so-called stimulus measures have long been sought by business groups, which is one reason why some business leaders have not been particularly vocal in opposing the tax proposals.

“In the governor’s proposal, the silver lining is on his insistence on economic stimulus proposals,” said Kabateck, whose group represents thousands of small businesses.

Approval of Schwarzenegger’s budget plan is far from certain. Republican lawmakers in both houses have steadfastly opposed new tax measures at least in public. And it’s by no means certain that Democrat lawmakers will go for all these new levies either. And Democrats have so far opposed most of the stimulus measures put forward by Schwarzenegger.

Adding urgency to the budget negotiations is the prospect that the state could run out of operating cash by early February, forcing it to issue IOUs in lieu of payments.

Palmer said that Schwarzenegger does not want to place more taxes on businesses and consumers.

“But the speed with which this budget deficit has exploded in the last 90 days has forced us to put these revenue options on the table,” he said.

Sudden increase

Indeed, a key complaint of business leaders is the speed with which the taxes would be applied. Under the budget plan put forward on New Year’s Eve by Schwarzenegger, the extension of the sales tax to appliance and furniture repair shops, vehicle repair and veterinarian services would take effect just seven weeks from now on March 1. Amusement parks, sporting events and golf courses would get hit on April 1.

Bob Bouchier, executive director of the California Alliance for Golf, which was formed last year in an attempt to unite the industry’s lobbying efforts, said the proposed tax increase is the group’s first major test. Bouchier said it has “galvanized” the industry.

“You take an industry that is subject to economic cycles just like any other and all of a sudden, you put a new tax on, starting in Los Angeles at 10.25 percent, and the impact will be dramatic,” Bouchier said. “At tournaments like the upcoming Northern Trust Open (at the Riviera Country Club in Pacific Palisades), it will cost 10 percent more for each patron to attend. So naturally, fewer will attend and that means less revenue.”

About two-thirds of the total revenue from extending the sales tax to services would come from the auto repair industry, which is only now beginning to mobilize against the proposal. The California Autobody Association has been sending protest letters to Schwarzenegger’s office and is planning to send letters to legislators in the next several days. Labor typically is about 60 percent of a repair bill.

“It’s plain flat-out not good for our business. Our business is already down about 35 percent from year-ago levels,” said Chip Fabrizio, director of Cormier Collision Center in Long Beach and president of the South Coast chapter of the Autobody Association.

“Instead of getting repairs, many people are just taking the insurance money they receive and using it to pay off other bills,” he said. “If people already are holding back on getting repairs, adding this tax will only make this worse.”

Even in industries not targeted in Schwarzenegger’s plan are worried that they might be next, business leaders said. But California’s budget deficit is so huge that some concede that some tax increases are inevitable.

“There’s no way that you can balance this budget simply by cutting costs,” said Allan Zaremberg, the generally hawkish president of the California Chamber of Commerce. “But when you go about raising revenues, you must do so in the most broad-based way that does not adversely affect the economy.”

The proposed 24 percent temporary increase in the current base sales tax rate would qualify as such a broad measure. But few are convinced that such a tax increase would be taken off the books in three years.

“Come on, do you really think that tax would be repealed?” asked Bouchier.

Howard Fine
Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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