CFCE Blog

Experience with services taxes in other states

By Loren Kaye
Posted 5/01/2008

Tax policy makers and some elected officials suggest that broadening the sales tax to include services might be a solution to the state budget deficit.  But before they take that step, they should brush up on their George Santayana, who famously said, “Those who cannot remember the past are condemned to repeat it.”

Over the past two decades, three large states have adopted broad sales taxes on services – and then repealed them within months. 

In 1987, Florida enacted a broad sales tax on services, which covered all manner of personal and professional services, including a new tax on accountants, attorneys, architects and advertisers – and that was only the “A's.”  It included purchases from out-of-state providers.  Within six months, the state legislature repealed the tax, replacing it with a penny increase in the sales tax on tangible goods.

In 1990, Massachusetts expanded its sales tax to services, but repealed it before the effective date.

And just last year, Michigan adopted a sales tax on a wide range of mostly personal services.  It was repealed before it even went into effect.

Most recently, Maryland repealed its expansion of the sales tax to computer services. Passed in November 2007, and set to become effective this July, the Legislature repealed it last month.

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