SACRAMENTO BUSINESS JOURNAL: Why bill to tax professional services is off for now -- but may be back

By Allen Young

September 10, 2015

An ambitious proposal to fundamentally change California’s tax code by taxing most professional services is done for the year, Sen. Bob Hertzberg’s office confirmed Wednesday. The bill sought to reduce taxes on income and corporations in return for imposing a tax on nearly all professional services — from accounting to legal services and construction.

Businesses and others took the proposal seriously because it was backed by an influential state senator as well as a think tank made up of wealthy political donors.

Sen. Bob Hertzberg was not immediately available to comment on his bill Wednesday. But he said all year that Senate Bill 8 was a work in progress and that the proposal would eventually go to the statewide ballot. His office confirmed Wednesday that the bill would not be moving forward in the Legislature this year and will return next year.

Business groups met Senate Bill 8 with ambivalence, with some applauding the idea of stabilizing government revenue and others concerned the legislation was a covert tax hike. In April, the California Board of Equalization reported that applying the current sales tax rate of 8.4 percent to an array of industries would bring an additional $123 billion to state and local governments.

Hertzberg said the report wasn’t fair because it didn’t account for other changes that would be included in the bill to soften the impact on businesses and residents. Hertzberg has said Senate Bill 8 was an attempt to move California away from its perpetual and-bust cycle and into a tax system that acknowledged that the state economy is now overwhelmingly based on professional services and not goods.

The California Business Roundtable, a trade group including some of the state's biggest employers, said it embraced the discussion. Other business advocates feared the proposal would disproportionately hit smaller businesses that contract out certain services. The California chapter of the National Federation of Independent Business called the proposal “ as regressive as it gets.”

Gov. Jerry Brown told reporters in May that he had an open mind about the idea but doubted it was politically viable.

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