The idea of a sales tax on services in North Carolina has been rearing it's ugly head again lately, and while I can see why some people would support such an idea, I can't.
You see, I happen own a tiny service business that would be adversely affected by such a tax. My business is a one-man operation totally dependent on my labor. After expenses, whatever is left is my personal income, on which I pay taxes like any other citizen. A sales tax on my services would amount to double taxation of my earnings. That's not fair by anyone's standard, especially in light of the fact that so many huge corporations today (some of them my direct competitors) avoid paying their fair share of our collective tax burden.
A tax on services would hurt my business in several ways. For one thing, it would take up quite a bit of my time dealing with the paperwork involved; time I could be spending providing my service and as any business person will tell you, time is money.
Even if I have my accountant handle it for me, someone has to be paid for that extra work, meaning I have to choose between raising my rates, thus making my service less competitive, or taking a pay cut, which ultimately hurts my family and the North Carolina Dept. of Revenue. Less income means less taxes paid on my income, and less purchasing of good on which I would pay the existing sales tax, and that means fewer revenues for the state of North Carolina.
To a larger business with employees, these same issues will still exist, only they will be magnified several times, resulting in the potential loss of jobs as the repercussions reverberate through our already fragile economy. For a sole-proprietor like me it could even mean the difference between success or failure of my business. My company may not yet directly produce more than one job, but indirectly the purchases I make, both to operate my business and with the tiny profit I manage to earn from each job, contribute to the the jobs of many of my neighbors across the region.
A better way to raise revenues without putting jobs at risk would be to add a few more brackets to the upper end of our income tax scale. An additional percentage point added to any income above $1,000,000 and perhaps another for incomes over $10m would generate far more revenue for our state and have zero impact on job growth and retention.
North Carolina needs more revenue, but let's be smart about solving the problem.