California May Start Taxing Business Services

Feb 8, 2018 | Blog

CA Flag and Credit CardA bill was proposed in California’s State Senate this past Monday that would add a new tax on businesses to help offset the impact of the federal tax bill passed by Congress and President Trump back in December, according to

Senate Bill 993 was proposed by State Sen. Bob Hertzberg, D-Van Nays, to increase California’s state revenues through “a modest tax” on consultant services purchased by companies with more than $100,000 in sales receipts. Law firms and accountants are among the services that would be taxed under the proposed legislation.

The resulting revenue would be placed in a “Retail Sales Tax on Services Fund” that the state treasurer could distribute as needed for education, infrastructure projects, and programs to benefit California’s middle-lower income residents.

The exact tax rate will be determined at an unspecified date by a policy committee. Hertzberg’s office notes that other states with comparable taxes already in place charge between 4-6 percent on corporate consulting services.

Sen. Hertzberg also notes that this new tax could be used as a deduction on affected business’s federal tax return to the IRS, potentially lowering their total tax burden. He also cited the need to diversify the state of California’s revenue streams as a reason to support the bill.

This new bill is an effort to undo some of the impact of the federal tax law President Trump signed in December. That law capped state-level tax deductions at $10,000, a figure residents of blue states such as California and New York exceed with regularity. Some believe that this is an effort by President Trump to play political favorites in his tax bill.

This is not the first bill aimed at easing the tax burden on Californians. Another bill was passed last week allowing California residents to make charitable contributions to a fund within the state’s budget used for publicly funded colleges and universities. Since any donations are charitable and not a state tax, they act as a work-around to the $10,000 cap in the federal bill.

California state law requires any new tax to receive a super majority in both the State Senate and State Legislature before heading to the governor’s desk for final approval. Time will tell if Hertzberg can get the votes he needs.

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