In December of 2014, a service tax, Senate Bill 8 (SB 8), the “Upward Mobility Act,” was introduced by Senator Robert Hertzberg (D-Van Nuys). The bill’s purpose is to generate $10 billion for schools, local government and to provide tax credit for poor families. The bill would extend California’s sales tax to services, considered to be the state’s fastest growing sector; health care and education services would be exempt as well as small businesses with under $100,000 in sales.

California Association of REALTORS® (C.A.R.), opposes a service tax for several reasons:

-as a regressive tax, it has a disproportionately negative impact on low and middle income families who spend, rather than save, a larger percentage of their income on goods and services.
-fewer families would be able to rent as rental prices will increase even more, if a service tax is imposed on investment properties, the costs will eventually be passed on to renters.
-it will have a negative impact on housing affordability, especially as homes in California are still very expensive, adding a service tax, will make matters more dire.
-California service companies will be hurt as individuals and businesses, seeking to avoid the additional tax, will use out-of-state companies to provide services, hurting those California companies that would typically provide them.

In 2014, the median home price in California was $447,010 with a service tax of 7.5%, over 57,000 families would be priced out of the market. The taxable services would include services associated with selling or purchasing a home, which is “service intensive” including: appraisal fees, brokerage fees, home inspections, Natural Hazard Disclosure (NHD) Reports, pest control inspections, title insurance, escrow fees, loan origination fees and home warranty policies. It’s unclear what increase Senator Hertzberg will propose, nonetheless, adding a service tax will create a burden.

I support C.A.R.’s opposition to this bill, because SB 8, as it is written now, granted its unclear, whether the service tax would be 7.5%, 6.5% or 5%, regardless, this will undoubtedly add more barrier to homeownership, making home affordability more of a unattainable dream than a reality; hurting the ones the bill is suppose to protect. If the legislature is truly focused on housing affordability and re-emergence of a housing shortage, why not include housing in the exemption?

Source: “A Smart California Tax Bill Points The Way Needed Reform” LA Times (Dec 17, 2014).