CAWP Legislative News 4-10

Governor proposes expansion of sales tax

As part of his proposed Commonwealth budget for the 2010-2011 year which starts in July, Governor Ed Rendell floated the idea of greatly expanding the state sales tax to cover 74 currently exempt goods and services. Of particular note is the idea of assessing sales tax on services, something the Commonwealth has rarely done. While the Governor also proposed that the sales tax rate is to be lowered from 6% to 4%, the elimination of the 74 exemptions generates more revenue than is currently collected via this tax.

If enacted the expansion of the tax will make development and building more expensive. Architectural, engineering and other design services would be taxed for the first time as would construction management services. The labor portion of construction contracts would also be taxed so that contractors would need to account for that in their bids.

There is already a fair amount of opposition to the expanded sales tax with Republicans in both the House and Senate indicating that it is a non-starter for them. Regardless, a broad coalition of organizations has coalesced for the purpose of defeating the tax. The next several months will be critical in determining whether or not the expanded sales tax proposal finds a place in what is certain to require difficult choices on both the expense and revenue sides.