TN TAX BATTLE: SPONSORS OF SALES (TO SERVICES)TAX EXPANSION PLAN SAYS PROPOSAL MY BE IN TROUBLE

The Kingsport Times ^ | 5/20/02 | Tim Whaley

[GailA]

Sponsors of sales tax expansion plan say proposal may be in trouble

By TIM WHALEY

A tax plan favored by Sullivan lawmakers may not ever make it up for a House floor vote, possibly leaving a flat income tax as the only leading plan near to a House vote.

Lowering the state's 6 percent sales tax rate and expanding the sales tax to most services and exempted items gained steam the past two weeks as an alternative to the flat-rate income tax proposed by House Speaker Jimmy Naifeh, D-Covington.

Many income tax opponents, now acknowledging the state has at least an $800 million hole in the base fiscal 2003 budget, increasingly gravitated to the plan.

From a revenue standpoint, it was difficult going as the sponsors, Reps. Bob McKee, R-Athens, and Chris Newton, R-Cleveland, had to leave out health care and other medical services to ever have a hope of passage.

Still, it looked as if the plan could generate more than $1 billion in new state revenue by taxing personal and professional services - everything from construction to legal to pet grooming services and haircuts.

Then, late last week, a $180 million error was found in revenue projections for the plan.

That forced McKee and Newton to go with a 6 percent rate, instead of the originally proposed 5.5 percent rate.

Immediately, state Rep. Steve Godsey, R-Blountville, said he couldn't go with the plan since the tax base would broaden, but the rate would remain the same.

Also, Rep. Keith Westmoreland, R-Kingsport, said the plan was far less attractive since it only raised $966 million of the full $1.4 billion budget proposal.

"It probably does hurt our cause to a certain degree in the fact that we can't lower the sales tax rate in the first year," Newton said Friday. "So it has run possibly into a stumbling block. But that doesn't mean it isn't a viable option when members see what is left."

Newton did note that only two states tax services in a similar way, Washington state and North Dakota.

"Washington sent back word to us," Newton said. "They said don't do it."

Even worse, Newton acknowledged, is that by lowering the expanded sales tax rate to 5.5 percent in fiscal 2004, the revenue generated drops to $758 million.

"Bob (McKee) and I are somewhat in the same agreement on this," Newton said. "If we don't have 50 votes for this, the likelihood of it being back on floor is very minimal."

Newton said more than 20 Republicans were ready to vote for the measure prior to last-minute changes made Wednesday due to the lower revenue estimate.

"There was some hesitancy after the changes were made ... and that was completely legitimate," Newton said.

McKee acknowledged that Republican supporters like the measure better with the "small reduction" in sales tax rate included.

"I believe the (revenue) estimate is a conservative estimate of what it might bring in," McKee said. "But it would still be a little short of what is actually needed, so that is another consideration."

Newton said it makes no sense to chance running the measure on the floor if 50 votes aren't clearly present. A floor vote to reject the motion could close the statute for further consideration in other plans.

"We have been talking about this budget problem for the last three and a half years now," Newton said. "The sad part is by the end of this fiscal year on June 30, we will have raided the rainy day fund and almost every single reserve in state government. We will not have that luxury of reserves going into next fiscal year.

"We are going to have to raise revenue. It's just a matter of what form it takes."

In putting up the expanded sales tax, Newton said the sponsors found a lot of good reasons why certain services and items are exempt from state sales taxes.

"We tried not to go in with a shotgun blast and hit everything," Newton said. "Some are in there for good reasons. For instance, health care is flat too expensive as it is, period."

[GailA]

NOTE NOT ONE WORD ABOUT BUDGET CUTS! JUST MORE TAXES!

INCOME TAX PROTEST RALLY WEDNESDAY MAY 22 AT CAPITOL BUILDING BE THERE IF YOU CAN

CONTACT INFO (BE AWARE THEY ARE BEING FLOODED WITH EMAIL BOTH PRO AND CON. MAKE PHONE CALLS)

Tennessee General Assembly

On the left side of the page are these choices: Information, Senate, House, Joint, Bills and Other Links. These options should get you to any information you need including office numbers, phone numbers, email addresses, committee assignments, legislative bills, etc.

Toll Free calling 1-800-449-8366 + extension or call the switchboard at (615) 741-3011.

[Blood of Tyrants]

It seems that the general assembly is prepared to do anything necessary to balance the budget. Anything except cut waste or even appear to cut waste, that is.

[GailA]

They are not even considering "job cuts" like the phantom ones king don made last year. UNFILLED jobs were not filled and called job cuts.

[from occupied ga]

I never hear of spending cuts to balance the budget. I wonder why?

[Theodore R.]

Let's hope this courageous little group of Tennesseeans could block the otherwise inevitable -- more taxes and expanded TN state government. There are certainly few TN officeholders on the side of these tax resisters. Sometimes it seems that the people of TN (and other states too) think the American Revolution was fought so that American bureaucrats could replace British bureaucrats. Sometimes it seems as if the American people are just plain hooked on bureaucrats and are waiting to collect their own "freebie" from "We The People."

[GailA]

ANTI INCOME TAX RALLY WILL BE WEDNESDAY MAY 22 AT LEGISLATIVE PLAZA.

PHOTOS OF LAST WEEKS RALLY AND LIST OF UNDECIDED CONGRESS CRITTERS TO CALL: TNTAXREVOLT

LASTEST NEWS: Taxfreetennessee

[JDGreen123]

It's the ladies in the Legislature who are standing strong against an income tax. They have caught heck from both parties but are still standing strong. Many of the wimpy men in the Legislature waffle around not letting you know what they really think.

These 3 ladies in particular have emerged as a sort of "Charlie's Angels" protecting the taxpayers from the bad guys.

Marsha Blackburn

Mae Beavers

Donna Rowland

These three have also lead the fight to do away with the Governor and Legislature's inane policy of issuing drivers licenses to illegal aliens! I always wonder where the NOW crowd is when brave conservative women stand up and make a political impact. NOW of course shows itself as a commy organiztaion by not supporting ladies like these while fawning over Hilleary Clinton and her ilk.

[GailA]

May 20, 2002 The Oak Ridger

Plan to tax services has its problems

by Tom Sharp Associated Press

NASHVILLE -- Nashville attorney Richard Norman doesn't like the idea of passing a sales tax along to his clients.

"You're going to hit people who have to see lawyers, and with a lot of people that's not the best time to be paying taxes," he said.

Norman and other attorneys in Tennessee would be doing just that -- unless they decided to pay the tax themselves rather than passing it along to their clients -- under a plan to expand the sales tax to include services and some exempted items being considered in the Legislature.

The services section of the plan would apply the sales tax to construction services, the largest segment; attorneys, accountants, engineers, architects and a raft of others currently outside the reach of the sales tax because no tangible goods are exchanged.

The plan is sponsored by Reps. Bob McKee of Athens and Chris Newton of Cleveland, both Republicans, as the best alternative to a state income tax.

"This is an approach many of our colleagues have said they could support," Newton said.

The plan nearly came up for a vote on the House floor last week, but the details were being worked on up until the last minute, and neither Newton nor McKee wanted to ask the House to vote on a major overhaul of the tax system they'd barely seen.

The bill was sent back to the Calendar Committee, where it could be recalled at virtually any time by the sponsors.

"We'll take a hard vote count this week and see if the votes are there," Newton said. "We won't string people out if the votes aren't there. If they are, we'll bring it back up."

The McKee-Newton plan is the latest effort to solve Tennessee's financial situation by expanding the sales tax to untaxed services without using an income tax. Their version is the most thoughtful effort yet presented.

A 4.5 percent income tax sponsored by House Speaker Jimmy Naifeh also is available on the House floor. Naifeh has said he does not expect a vote on that plan until next week.

Partly because of the careful approach to taxing services adopted by Newton and McKee, their plan does not raise as much money as previous projected services taxes. If the overall sales tax rate was lowered to 5.5 percent, which the sponsors consider critical to gaining enough political support, the plan would raise an estimated $760 million a year.

That's still more than half a billion dollars short of the $1.4 billion in new tax revenue needed to fully fund Gov. Don Sundquist's proposed $9.6 billion budget. The Naifeh plan would raise an estimated $1.1 billion.

Taxing services has several pitfalls. McKee and Newton tried to avoid what they could, but some are inherent to the concept.

"It would make us where we're not competitive with out-of-state firms," said Lillard Teasley, principal partner in Teasley and Buchanan Engineering LLC in Nashville, a construction design firm.

"If a Kentucky firm comes here to design a building we're at a 6 percent disadvantage right away."

Told the plan contemplates taxing any out-of-state firm designing a business in Tennessee, Teasley responded: "How would they enforce that? They can't. ... We would have to swallow the sales tax."

Mike Cole of the state Department of Revenue, which would collect the tax, agreed it would not be easy to collect under the scenario Teasley described.

"You have to identify those people who do business in Tennessee and register them for the tax. That's going to be a challenge, but that's what we have to try to do."

Cole suggested Tennessee companies in that situation "will certainly contact us to make sure their competitors are registered to pay the tax."

>b?Tim Wheeler, owner of Wheeler Construction Co. in Hendersonville, said if a sales tax were added to his service "we wouldn't be in a recession, we'd be in a depression."

"I might just as well throw them the keys to my place. If I pass it along, I up the price of a house, and I can't do that, the competition won't let you," he said. "There's plenty of houses for sale right now, and everybody's cutting each other's throats to sell a house."

Allan Ramseur, lobbyist for the Tennessee Bar Association, said the TBA supports a services tax as long as the rate is low and applies to everybody.

"This proposal does not meet either of those criteria," he said. "That rate is going to cause economic dislocation. It's high enough to influence decisions about where people want their legal work done."

Ramseur said an individual with legal problems would most likely still go to their local attorney, but a multistate firm might decide to have its work done elsewhere.

"Say you've got a bond issue and you have to choose between an Atlanta firm and a Nashville firm. The Nashville counsel is going to tax you 5.5 percent on a $200,000 or $300,000 bill. Where would you do it?"

McKee and Newton excluded all medical services from their bill. Whether to tax medical services, the largest segment of the service economy, has been the biggest stumbling block for most efforts to expand the sales tax.

"That creates an equity argument," Ramseur said. "What's equitable about saying the person who performs the emergency procedure after someone's car wreck is not taxed, but the person who recovers the money from the insurance company to pay those fees is taxed?"

The services tax bill is HB2942/SB3004.

[PetroniDE]

It sounds worse that lowering sales tax to implement income tax, only to raise sales tax back later. The way I read this, they now only want to implement the income tax, and forget out lowering the sales tax.

KEEP FIGHTING THIS BATTLE. Give me that state budget. I can have it balanced in 20 minutes, without ANY new taxes. Where are those scissors and the state credit cards?

[cva66snipe]

There is a billboard as you leave Oak Ridge toward Clinton with an Oak Ridger headline McNally supports state income tax. Tennessee Bob it's right in the Elza Gate area. Have you seen it?

[Tennessee_Bob]

Haven't seen it, CVA, but then, I don't usually head out of town in that direction. I usually go out over the Bull Run bridge. I'll have to go by and take a look at it.

[JDGreen123]

The Tennessee Conservative Union has a page on McNally.

Randy McNally's Record on Taxes Stinks Like a Polecat!

[Theodore R.]

Well, those TN ladies look grand, and it is strange that they, unlike many of their male counterparts, have thus far not yet been tempted by "big government" in Nashville. But I am afraid that America is so committed to "big government" that the nation is doomed in debt and bureaucracy. People look for a government "solution" to everything these days.

[TN Republican]

We don't even need spending cuts if this tax plan is passed. We just won't be able to meet Don's unconstitutionally large budget. It exceeds the rate of growth of the state economy, outstrips our ability to pay for it within the current tax structure, and is designed specifically to induce the passage of an unconstitutional income tax.

This plan will cover all the necessities, plus a lot of non-necessities. Continuing to carry 1/4 of the state's population on TennCare is not necessary. Throwing more money at education is also not necessary. Employee raises are absolutely not necessary.

[from occupied ga]

We don't even need spending cuts if this tax plan is passed.

That's their point too; however, rather than cut spending to meet their income, the Tn legislature is proposing to rob even more money from the Tn taxpayers to slake their lust to spend other peoples' hard earned money. I find this to be disgusting in a couple of ways. First the obvious, and second, that the theives haven't been thrown out of office (and for that matter not tarred and feathered and ridden out of town on a rail)

[TN Republican]

It is obvious that our choices have been narrowed down to: more of the same nonsense with no paring back; or an increase in all taxes, to provide Naifeh and Sundquist with a lien on all of our future earnings. There is absolutely no push to cut spending, which is mighty unfortunate for us middle-class people (even though we're being told we would benefit from an income tax by $45 a year).