Heavy reliance on sales tax is a major factor in the regressivity of Washington’s tax system, since low‐ and moderate-income people spend a higher percentage of their income on items subject to sales tax than the wealthy do. Over‐reliance on sales tax also contributes to the gap between revenues and demand for services, because Americans spend less of their income on items subject to sales tax than in the past.
Extending the sales tax to selected goods and services may be the simplest way to expand Washington’s tax base, both raising new revenue and strengthening the tax structure.
There is no rationale for charging sales tax on movie rentals but not theater tickets, for pet grooming supplies but not pet grooming services, for hair dye and razors but not hair salon services. Services are also more likely to be purchased by higher‐income households.
Extending sales tax to select services would result in a big tax cut for the affected businesses, because their B&O tax rate would change from the 1.5% services rate to the 0.471% retail rate.
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