Taxing Concerns


In a philosophical way, state Sen. Robert Hertzberg’s plan to create a sales tax on services makes sense. He argues that since service businesses – nail salons, car repair shops, law firms, etc. – now make up 80 percent of the state’s economy, the state may as well create a new tax of 6.5 percent on the receipts of those businesses. He envisions that personal income taxes could come down as a tradeoff.

That would broaden the state’s tax base and reduce California’s reliance on the incomes of top earners and the resulting see-saw revenue it provides.

But in a more practical way, taxes on services can be problematic. Defining a service business is one problem. It’s easy to say a barber provides a service, but does a rock-climbing facility provide a service? Or a gym where customers work out but don’t take classes?

Then there’s the pyramiding problem. Some endeavors require a string of services, and the tax on one gets added to the next so you get a tax on a tax. As pointed out in an article by reporter Howard Fine in the Business Journal last week, home sales – with title insurance, pest inspectors, escrow companies, etc. – is one such endeavor. Little surprise, then, that the Realtor community is gearing up to fight the proposed service tax.

And I understand why Hertzberg wants to exclude medical and educational services from his proposed service tax. But what’s the rationale for excluding small businesses from the tax? After all, you pay a sales tax on physical goods regardless of whether you buy it from CVS or the mom-and-pop drugstore on the corner. Why should you pay a tax when H&R Block prepares your return but not pay that tax when your neighborhood accountant does that work?

Hertzberg’s proposal may make sense in a broad way. But his plan represents a huge change with implications, particularly for the state’s businesses, that need to be thought through and understood. I mean, pass a big tax redo like that, and the Law of Unintended Consequences will get a thorough workout.

I like what one writer, Richard Rubin, blogged last week: Maybe it’s time for a state tax convention. One in which a variety of folks can come up with a comprehensive and updated tax plan. One that will last for years and give everyone – businesses and individuals – some certainty so that they can plan and invest in California.

You can argue that Los Angeles International Airport has a long way to go. But you can’t argue whether it’s improved greatly since Gina Marie Lindsey took command of the cockpit there nearly eight years ago.

Indeed, there’s already been nearly $3 billion in improvements at LAX in her tenure; all terminals, save one, have been renovated in some way. The $1.9 billion upgrade to the Tom Bradley International Terminal will be finished soon. And improvements will continue long after she’s gone. Airport officials recently approved a $4 billion plan that calls for more upgrades, including a train system that would ferry passengers to the airport from an off-site check-in facility.

She strengthened the shaky finances of the outlying airports (and closed the one in Palmdale) and pushed to move a runway at LAX farther out – an initiative very unpopular with many neighbors but necessary to help keep LAX competitive. By the way, LAX was America’s third biggest airport when she took over; it’s the second biggest now.

Lindsey announced last week that she would leave her post after a successor is found. That created a milestone moment; a time to pause and reflect on how far the airport has traveled in the last eight years.

No, LAX has not yet arrived at the place where we can say it’s truly a great, world-class airport. But it’s come a long way, and it appears to be on a trajectory to get closer to that destination in the coming years.

Charles Crumpley is editor of the Business Journal. He can be reached at [email protected].

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