A bill has been introduced that would impose a sales tax on services.  Senate Bill 8 sponsored by Senator Hertzberg would impose a tax on consumer services, including services associated with a real estate purchase and sale transaction.  Among the proposed services that would be taxed are home inspection fees, structural pest control inspection fees, brokerage commissions, title insurance, escrow services, disclosures reports, and the like.

The proposed new services tax appears on its face to disproportionately burden a real estate transaction which is, by its nature, service intensive.  As proposed, the new services tax would be on top of standard closing costs and could adversely affect housing affordability.

The specific section addressing taxation of services is provision (n) which reads:

“The economy has shifted away from the production of goods to services.  Since 1966 sales of taxable goods, as a share of the economy, have been cut in half.  Today services represent 80 percent of California’s economy.  Expanding the Sales and Use Tax to cover services removes a significant inequitable aspect of the tax code, implicitly favoring consumer spending on services over goods.  Currently the sale of a TurboTax software disk is taxed, whereas a consumer who instead paid H&R Block would escape taxation.  In essence, those who produce goods such as software or machinery are supporting those who produce services and information.  Taxing only goods and not services when our economy has been so fundamentally transformed makes no sense and is manifestly unfair.  This has to change.”

A copy of Senate Bill 8 can be found by clicking on the following link : Senate Bill 8