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Proposed sales tax on services is scary for small businesses

By Glenn Burkins
Glenn Burkins is editor and publisher of Qcitymetro.com, an online news site targeting CharlotteĀ’s African American community. He is a former Wall Street Journal reporter and Charlotte Observer business editor.

Some scary things in life I simply ignore. Like having a tree fall on my head.

Sure, it could happen, but what are the odds?

Up until recently, I didn’t worry much about the possibility that North Carolina lawmakers would impose a tax on services in the name of tax reform. Now I’m not so sure, and as a small-business owner, it has me spooked.

Each of the three tax-reform bills circulating in Raleigh would add a sales tax to some list of services that are now tax-free. One proposal would tax just a few additional services; the most aggressive would tax more than 160. On Monday, the N.C. House of Representatives gave final approval to its tax reform bill, and referred it to the Senate.

Proponents – namely Republicans – say reform is needed to bring the North Carolina tax code into the modern era, and I can appreciate that. With the loss of manufacturing, our economy depends more heavily on the service sector, which is largely untaxed.

But the service sector also makes up the fragile bedrock of the state’s small-business community – entrepreneurs who do everything from mow our lawns to install our kitchen appliances. A new tax on services could impact that sector greatly.

For starters, a service tax dumps a new layer of responsibility and paperwork on a group of overworked individuals who can ill afford to collect, document and remit this tax to the state. Suddenly, amid the myriad duties we currently juggle as entrepreneurs, we may soon find ourselves acting as tax agents. And heaven forbid we get it wrong. What new penalties would then be imposed?

On the other end are the new taxes we’d pay.

If you own a small business, consider how dependent your company is on the services of other small businesses – services that could one day be taxed in North Carolina.

Gregg Thompson, who heads the North Carolina chapter of the National Federation of Independent Business, said his organization is surveying its members to determine whether NFIB will support or oppose the service tax.

Thompson said the organization has surveyed members at least three times in the last 8 1/2 years, and each time more than 80 percent of the membership opposed a service tax.

Thompson said at least 70 percent of the membership must be in agreement before NFIB would take a position on the service-tax proposals.

“The problem they (legislators) are going to have with tax reform is educating the public and the business sector,” he said. “It’s a complicated issue, and it’s complicated to talk with our members about it.”

Thompson said NFIB would oppose any bill that sought to tax small, independent business owners, such as barbers and lawn care providers while offering exemptions to more powerful professional groups such as lawyers, doctors and accountants.

He said he also worries that taxing the smallest service-based entrepreneurs might be difficult to regulate and thus lead to enforcement actions.

“We certainly don’t want to see small-business owners turned into criminals,” he said.

My biggest concern is that, even if we avoid the most aggressive tax on services this time around, state lawmakers have opened a door. Who can doubt that eventually, as budgetary demands require, they will gradually add on to the list of services subject to the tax?

In short, lawmakers would be well advised to go slowly. So far, they’ve done a poor job of addressing the legitimate questions and concerns that small-business owners will undoubtedly have. With so much at stake, these are the kinds of issues that lend themselves well to town hall-style meetings.

But I’m not holding my breath. And before the services of my favorite tree trimmer is taxed, I think I’ll have that giant oak removed … before it falls on my head.

Glenn Burkins is editor and publisher of Qcitymetro.com, a news site for Charlotte’s African-American community. He is a former Wall Street Journal reporter and Observer business editor.
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