Quirky Tax Makeovers Sweeten State Coffers

Thinking about a tummy tuck or hair transplants? Well if you live in New Jersey, better figure on an extra 6 percent cut for the taxman. If you want a nose ring or tattoo in Arkansas, be prepared to be slapped with a levy.

In today’s tax-averse times, there’s no end to states’ ingenuity in discovering quirky ways to separate residents from their money.

Take the “jock tax” in 20 states, for example, that targets millionaire athletes and entertainers. Why shouldn’t San Francisco left-fielder Barry Bonds, rocker Bruce “The Boss” Springsteen or rapper 50 Cent give the state a fair share when they venture into town? Superstars’ entourages have to pay up too.

The state will get its share if you:

• Dock a boat or have the dog groomed in Arkansas 
• Use a health club or buy a newspaper in Connecticut 
• Bar hop into the wee hours in Minnesota (tavern owner must pay an extra fee to stay open late)
• Get cable or satellite TV in Utah
• Ice skate in Massachusetts
• Get clothes dry-cleaned or a stranded vehicle towed in Ohio
• Hire a detective or a handyman in Nebraska

 Even the bathroom is not off-limits. To help with the cleanup of the Chesapeake Bay, Maryland residents now must pay a “flush tax” that adds $2.50 to septic and sewer bills.

From the states’ perspective, this is no laughing matter. Their tax collectors are busily thinking up these offbeat new levies because today’s service-oriented U.S. economy has moved many transactions beyond the reach of traditional taxes.

The country has shifted from producing cars, appliances and other goods that most states have taxed since the 1930s to producing services, which most states don’t tax. So states are cozying up to the idea of slapping sales taxes on some services.

The Federation of Tax Administrators helpfully has drawn up a list of 160-plus services that are potential new targets for sales taxes. Only three states — Hawaii, New Mexico and South Dakota tax more than half the services on that list, which ranges from tuxedo rentals to photocopying. Most states tax less than one-third of the services listed. Taxing the odd service here or there also is seen as less onerous than trying to raise income taxes.

By some estimates, states lose $57 billion a year from not taxing services that households buy, whether it’s adding a porch to the house or the cost of labor for car repairs. That’s a lot of untapped revenue. So don’t look now, but the state soon may be knocking on your door to collect in ways you never expected.

The preceding article was excerpted from Stateline.org’s “State of the States 2005.” For your free copy of our annual 60-page reference book, send your name, mailing address and occupation to [email protected].