The California Tax Commission is coming close to finalizing a package of so-called reforms to the way Californians pay for their government, and to my amazement, a center-piece of the current likely proposal is what is called a Business Net Receipts Tax (BNRT), which is similar to a value added tax. As proposed, it would apply to all businesses in California, expanding the scope of what is currently taxed in the state from just goods now to services.
This particular element of the Commission’s proposal is clearly something that should be excised. It is criticized from the left this morning in a thoughtful piece from Jean Ross of the big-government supporting California Budget Project over at CalBuzz, and right here on the FlashReport conservative Michelle Steel, one of the two Republicans on the State Board of Equalization, takes the BNRT proposal to task in a piece broadly concerned with the pending report of the commission. Joel Fox also pointed out the concerns of the BNRT to small business over at Fox and Hounds Daily.
While they both make some great arguments about why the BNRT proposal is bad, the reason why for me it is a “deal killer” (meaning that if it is in the final proposal, and if it is taken as a package, it must be soundly rejected) is because the BNRT is a “hidden tax” – hidden from the ultimate consumer of services. Income taxes, sales taxes, flat taxes – all of them are very obvious to someone buying a product. They know what they are paying for their government services. But one insidious component of a BNRT is that rather than the consumer paying the taxes, the tax burden is on the businesses providing services. So while the consumer will pay the higher costs created by the BNRT, it is not obvious to them.
It’s not hard, under these circumstances, to see where Californians may think they are getting tax relief from this proposal, when really it means that the “obvious” taxes that are used to paying are shrinking, but they will now be hit with a “hidden tax” instead.
Trying to significantly change the way the tax system works in California is clearly no easy task. And the system we have now is terrible in many ways. But if the BNRT comes to the legislature as part of a final report from the California Tax Commission, then in the name of transparency in government taxation, liberals and conservatives alike in the legislature should vote no.
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