Lamont’s budget expands use of sales tax
HARTFORD — Haircuts, laundry, legal services, veterinarian visits and parking are on the list. Even paying an accountant to file your taxes could now be subject to the state sales tax.
That’s because Gov. Ned Lamont proposed broad expansions of the sales tax in his budget proposal released Wednesday. The two-year budget does not increase the rate of the sales tax, but applies the levy to more things.
Textbooks, medicine, helmets and parking may be taxed, if the budget passes, as well as numerous consumer services. Lamont wants ramp up enforcement of tax collection on online sales, too.
“Our current sales tax is designed for a Sears Roebuck economy driven by over-the-counter sales,” said Lamont in his budget address. “Today we live in an Amazon economy which is driven by e-commerce, digital downloads, and consumer services.”
It is the Democrat’s way of increasing state revenue without raising the personal income tax on the rich — a promise he made on the campaign trail.
There are plenty of constituencies who make take issue with these proposals. Lawmakers referred to the budget as a first step, likely to change before passage.
Lamont also wants to use tax policy to discourage behaviors like smoking, drinking alcohol and soda and using plastic bags. He proposed raising the age to buy tobacco to 21 and implementing a 75 percent wholesale tax on ecigarette liquids.
His budget included a 1.5 cent per ounce tax on drinks with added sugars and a five cent bottle deposit on 50 milliliter liquor bottles and a 25 cent deposit on wine and liquor bottles. It would establish a 10 cent fee on each noncompostable plastic bag.
Lamont also proposed maintaining the hospital user fee at $900 million. He would eliminate the business entity tax, but raise the fee that companies pay to register with the Secretary of the State’s office. He suggested eliminating Connecticut’s gift tax, which is the only such tax in the nation.
His budget would give a $200 property tax credit to the elderly and people with dependents. It would also phase up toward the full federal exemption level for the estate tax. His budget did not contain revenues from legalized recreational marijuana or sports betting.
These changes would increase state revenue by $1.3 billion in the next fiscal year, Lamont’s office predicted.
Lawmakers weigh in
These tax proposals will be heavily debated before the budget is passed. Divisions within caucuses may prove an obstacle.
“The issues of revenues is going to be difficult, but I think it is going to be essential to do,” said Senate President Pro Tempore Martin Looney, D-New Haven.
Speaker of the House Joe Aresimowicz called the state’s current tax structure “flawed.”
“Is it far to pay (sales tax) for a pedicure but not a haircut? How is it that newspapers you don’t pay sales tax?” he asked. “There are a lot of things that make it inherently unfair.”
While Lamont’s proposal may win him support among the wealthy, progressive Democrats view the sales tax as “regressive” and want to decrease reliance on it. Progressives make up about half of House Democrats and without their support, Lamont’s budget might fail to pass the Legislature.
State Rep. Josh Elliott, D-Hamden, founder of the House Progressive Caucus, spoke passionately in favor of raising the income tax on the wealthy last week.
“We are punishing the middle class in this state, and we are letting people who are ultra wealthy get by by paying nearly half of the rate of everyone else,” said Elliott. “We cannot simply be listening to anecdotal evidence of one or two ultra-wealthy people who are leaving our state.”
House Minority Leader Themis Klarides, R-Derby, was also concerned about the effect of the governor’s tax changes on the middle class.
“For the governor to say he is not raising the sales tax is slightly disingenuous because he is getting rid of exemptions,” she said. “There is nothing that hurts the middle class more than this budget proposal.”
Senate Republican Leader Len Fasano, R-North Haven, said there were good reasons why many of these sales tax expansions had not been implemented earlier. About a dozen Republican lawmakers brought Big Gulp sodas to the budget address to protest the tax on sodas.
More sales tax revenue
Connecticut’s sales tax rate is now 6.35 percent. It applies to numerous goods, excluding groceries and medications. Last month, there was speculation that Lamont was considering a sales tax on groceries, drawing immediate fierce criticism.
Instead, Lamont has extended the sales tax to legal, accounting, architectural, engineering and real estate services. It would apply to barber shops and beauty salons, veterinarian visits, dry cleaning, coin operated laundry, parking, massage therapy and waste collection.
His budget would repeal the sales tax exemptions on non-prescription drugs, textbooks for college students, bike helmets, child car seat and newspapers. It would end the sales tax free week in August. Most of these changes would take effect on Jan. 1, 2020.
The governor’s office predicted this will bring in $292 million in the first year of the budget and $500 million in the second year.
“The governor proposes to capture a growing segment of the economy,” said Melissa McCaw, secretary of the Office of Policy and Management.
“Really the goal here is to level the playing field and have an equal tax treatment of both goods and services.”
Business to business transactions would be exempt, said McCaw.
Lamont also suggested raising the tax on digital downloads from one to six percent, increasing the tax on boats from 2.99 percent to the standard sales tax and upping the hotel occupancy tax from 15 to 17 percent.